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Recent Developments Highlight SPAC Securities And Shareholder Litigation Risks | Vinson & Elkins LLP


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As the wave of SPAC IPOs and de-SPAC transactions continues to build, so too has the scrutiny of these transactions from the SEC and the shareholder plaintiff’s bar. On April 8, 2021, the SEC gave its clearest warning yet among a series of recent signals that it plans to intensify its review of de-SPAC transactions. Most recently, the SEC raised the possibility that statements in a de-SPAC transaction proxy statement fall within the IPO exclusion to the Private Securities Litigation Reform Act (“PSLRA”) safe harbor for forward-looking statements. Meanwhile, a SPAC shareholder recently filed suit in the Delaware Court of Chancery alleging that the SPAC’s board and sponsors breached their fiduciary duties in approving a de-SPAC transaction, and argued that the claims should be reviewed under Delaware’s demanding entire-fairness standard due to conflicts posed by the board’s and sponsors’ receipt of founde ....

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SEC Corporation Finance Acting Director Addresses Disclosure Liability Risk Of SPACs - Corporate/Commercial Law


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SEC Division of Corporation Finance Acting Director John Coates
argued against claims by some practitioners
and commentators that Special Purpose Acquisition Companies
( SPACs ) may face lesser securities law liability in the
context of a de-SPAC transaction than traditional IPOs.
Mr. Coates asserted that the liability risks associated with
disclosures in the de-SPAC transaction (
i.e.,
the second stage business combination transaction in which SPACs
issue equity to target owners) could in some ways be higher than in
conventional IPOs due to the potential conflicts of interest in the ....

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SEC official warns of SPAC risks


SEC official warns of SPAC risks
Bloomberg
Creating SPACs and taking them public is not a free pass to avoid federal securities laws, SEC Division of Corporation Finance Acting Director John Coates said.
His statement Thursday on SPACs and liability risks related to IPOs was prompted by what he said was an unprecedented surge in special purpose acquisition companies.
Concerns include risks from fees, conflicts and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACs, Mr. Coates said.
SEC officials will be looking closely at SPAC filings and asking for clearer disclosure, he added. They are also considering next steps, including rule-making to recalibrate the applicable definitions, and guidance on how safe harbors apply, if at all. ....

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