While Special Purpose Acquisition Companies (SPACs) SPACs—shell companies created for the sole purpose of funding the future acquisition of another company—have existed since the 1990s, interest (and investing) in them took off during the pandemic. But the rise of SPAC popularity means that hedge funds and others have been entering the SPAC market, while a number of SPACs are under investigation. That has led the Securities and Exchange Commission (SEC) to propose new rules relating to SPACs.
The proposed rules set out requirements that SPACs would need to comply with to avoid registering as an investment company covered by the Investment Company Act. For example, a non-registered SPAC could only have cash and specified securities as assets. Also, once the SPAC had acquired a target company, the SPAC would need to switch to operating the target’s business rather than continue as an investment entity.
Many of the proposed rules relate to disclosure requirements. If adopted, the SPACs will need to provide more information relating to SPAC sponsors, conflicts of interest, and dilution. They’d also need to provide disclosures relating to “de-SPAC transactions,” i.e., the SPAC merger with an acquired company and these transactions’ fairness to their investors. Most SPACs would also no longer be protected from liability when making forward-looking statements, such as projections, in filings.
SPAC registration may also change. Under these rules, private operating companies would need to be co-registrants when the SPAC files a registration relating to a de-SPAC. And they’d have to have a re-determination of company status within four days of the de-SPAC transaction completion.
Changing rules can complicate whistleblowing‚ because it takes time to fully understand all of the ramifications of the new policies. But it’s already clear that the SEC wants to limit companies’ ability to use SPACs as ongoing investment funds and force disclosures and operations to be more in line with existing requirements relating to other investments.
If you are considering a whistleblowing report relating to a SPAC’s defrauding investors or other wrongdoing, contact the attorneys at Silver Law Group and the Law Firm of David R. Chase. For a free, confidential consultation, email or call us today at (800) 975-4345.