March Madness extends into April as the Commission markedly increases its focus on SPACs.
TAKEAWAYS
Surprise pronouncements call into question use of the PSLRA safe harbor for projections and accounting treatment for warrants.
Flurry of activity and nature of the SEC’s guidance may signal a desire to cool down the hot market for SPACs.
The Securities and Exchange Commission (SEC or Commission) is raising its voice on Special Purpose Acquisition Companies (SPACs), alerting sponsors, targets, and investors to regulatory risks and raising new concerns about SPAC-related disclosures.
The SEC’s 2020 statements and guidance were relatively relaxed—the Commission focused largely on disclosure issues, including a statement from then-Chairman Jay Clayton to ensure that retail investors understand the incentives of SPAC sponsors, along with remarks by SEC officials during the 2020 SEC Speaks conference concerning risks created by potentially divergent incentives between sponsors and investors. But the SEC’s actions and rhetoric this month and last month have become more pointed, making clear that SPACs are becoming an enforcement priority. In response, new SPAC issues have slowed, and many deals remain on pause as the market digests what may be a new oversight regime. Whether the SEC’s approach cools down the SPAC market permanently remains to be seen; what is clear, however, is that SPAC participants should expect enhanced regulatory scrutiny.