May 24, 2021

SPACs Not Catching a Break, SEC Disapproves Nasdaq Proposed Rule Change

The SEC signaled again that it may not be all in on SPACs the way some might be hoping. Last week, the SEC issued an Order disapproving Nasdaq’s proposed rule change relating to SPACs. Nasdaq’s proposed rule change would’ve allowed SPACs that plan to complete one or more business combinations an additional 15 calendar days following the closing of a merger to demonstrate that the SPAC had satisfied the round lot shareholder requirement. As part of the rationale for proposing the rule change, Nasdaq noted difficulty SPACs can encounter when gathering evidence to demonstrate satisfaction of the shareholder requirement because SPAC shareholders may redeem their shares right up until the time of the merger.

As noted in the SEC Order, CII submitted a comment letter to the SEC expressing concern about whether Nasdaq’s proposed rule change was consistent with the protection of investors and the public interest. The SEC shared that concern, and in disapproving the proposal said that Nasdaq didn’t explain how the proposal addresses regulatory risks to fair and orderly markets, investor protection and the public interest and manipulation concerns.

While Nasdaq has amended its proposal to require certain public disclosure, the Commission does not believe the disclosure required by the proposed rule adequately addresses the potential risks associated with trading during a time period in which the minimum number of round lot shareholders may not be present, nor has Nasdaq explained why subjecting shareholders to this potential risk is consistent with the protection of investors and the public interest, and the other requirements of Section 6(b)(5) of the Exchange Act.

Direct Listings: SEC Approves Nasdaq Proposal

At the end of last year, I blogged about Nasdaq’s primary direct listing proposal, which was awaiting SEC review following the SEC’s approval of the NYSE direct listing rule.  After a bit of a wait, last week the SEC approved Nasdaq’s proposed rule to permit primary direct listings. This Paul Weiss memo summarizes the rule, which is effective immediately.

The rule will allow companies to undertake an IPO and concurrent Nasdaq listing without the use of underwriters – previously direct listings were only available for secondary offerings by existing shareholders. Over time we’ll see to what extent primary direct listings take off. Direct listings aren’t without risks, but they do offer certain advantages, which may be best suited for companies with strong name recognition.

PPP Loan Forgiveness Review: Consider Preparing for Potential Forgiveness Appeal Now

Last year, when the SBA rolled out the paycheck protection program, questions arose about whether companies made their “need certifications” in good faith. A borrower’s need certification was important because it could impact whether the SBA denied a PPP loan or ultimately forgiveness of a loan.  Recent data on the SBA website showed it had approved over 11 million PPP loans, forgiven over three million and thousands more were under review.

A Baker Donelson memo summarizes procedures relating to the PPP need certification and notes that the SBA never stated that it would only analyze the need certification during the loan review. Should the SBA deny forgiveness of a PPP loan, John blogged earlier this year about the short window to file an appeal. Baker Donelson’s memo says PPP borrowers should prepare a record for any potential appeal during the SBA’s review process, here’s an excerpt with more about reasons some companies should prepare now:

Significantly, the standard of review for PPP loan appeals “is whether the SBA loan review decision was based on clear error of fact or law” and the appellant has the burden of proof by a preponderance of the evidence.4 Therefore, when appealing any decision related to a PPP loan, the appellant will be in the best possible position if it can show that the SBA made a clear error of fact or law based on the information that was before SBA at the time when SBA made its decision. This means that the PPP loan borrower should include as much helpful information as possible in the record before SBA makes its final decision. For example, when OHA decides size appeals in the government contracts context, it frequently rules that information that was not before SBA when the formal size determination was made is not relevant to the appeal.5 While SBA size protest cases show that OHA does sometimes allow supplementation of the record when the new evidence “is relevant to the issues on appeal, does not unduly enlarge those issues, and clarifies the facts on those issues,”6 it is still best for the borrower to include as much helpful information as possible in the administrative record. Therefore, borrowers should make every effort to get information into the administrative record that it believes will assist its PPP loan review by the SBA or any appeal of the SBA’s decision.

The memo also outlines steps for companies to consider so they can get as much helpful information into the record to help in an appeal process.

– Lynn Jokela