On April 14, 2022, a SPAC called Alberton Acquisition Corporation filed a Form 8-K announcing that its de-SPAC target had decided to terminate its merger agreement with the Alberton because the deal would not be completed before its April 26, 2022 “drop dead” date. The 8-K includes a somewhat elliptical reference to the fact that Alberton’s Form S-4 registration statement for the transaction hadn’t been declared effective by the SEC as of April 13, 2022. That announcement prompted an extraordinary statement from Commissioner Hester Peirce criticizing the SEC for its inaction concerning that registration statement.
Alberton’s reference to the status of the registration statement may have been elliptical, but Commissioner Peirce’s was very direct. She said that the SEC failed to act on Alberton’s acceleration request, and that its inaction had everything to do with the company’s status as a SPAC:
Commission inaction on a request for acceleration of the effective date of a registration statement is highly unusual. Rule 461(b) of the Securities Act of 1933 explains the statutory considerations for the Commission when determining to accelerate the effective date of a registration statement, lists specific situations in which the Commission “may refuse to accelerate the effective date,” and states that “it is the general policy of the Commission, upon request, . . . to permit acceleration of the effective date of the registration statement as soon as possible after the filing of appropriate amendments, if any.” Here, no Commission action has been taken, so there is no obligation to explain why the registration statement was not declared effective.
The failure to take an otherwise routine step makes sense only in the larger context of the Commission’s newfound hostility to SPAC capital formation. The SPAC completed its IPO in October 2018 with the intent to complete a business combination within 18 months. SPAC shareholders approved two extensions of that timeline prior to a merger agreement being entered into in October 2020 with SolarMax, a solar energy company with operations in China. SPAC shareholders subsequently approved two further extensions of the timeline within which to complete the business combination, resulting in the current deadline of April 26, 2022. Meanwhile, the SPAC filed eight amendments to its registration statement relating to the business combination since October 2020, including the most recent April 4, 2022 amendment.
Commissioner Peirce goes on to recount other developments on the SPAC front over the course of the past 18 months, including “most significantly,” the SEC’s decision last month to propose “sweeping rules pertaining to SPACs, including a proposed non-exclusive safe harbor under the Investment Company Act of 1940.” Among other things, that safe harbor would require a SPAC to enter into a de-SPAC agreement within 18 months of their IPO & complete the deal within 24 months following the IPO.
Alberton has been a SPAC for more than 24 months, and Commissioner Peirce speculated that, because the failure to act on the acceleration request came less than a month after the release of the SPAC proposal, “this SPAC might be a victim of the parameters of a non-exclusive safe harbor that have not yet been adopted.” Her critique also hinted at potential due process issues associated with the SEC’s action, pointing out that “[w]ithout affording some notice, the Commission cannot turn on a dime and start treating SPACs that do not meet an arbitrarily determined timeline as investment companies.” She concludes her statement by questioning the SEC’s good faith with respect to this matter:
It is not a good look for the Commission to run a SPAC through the gauntlet of addressing disclosure comments only to say, “Oh, and by the way, now you are too old to be anything other than an investment company.” We must always engage registrants in the same good faith that we expect of them. A failure to do so would undermine the credibility of this agency.
Unfortunately, it’s difficult to assess the validity of Commissioner Peirce’s allegations. The Staff comment letters and company responses haven’t been made public yet, and with eight amendments (!) to the company’s Form S-4, it’s fair to say that this deal had a lot of hair on it, regardless of the SEC’s hostility toward SPACs. Furthermore, eleventh hour comments that throw the timing of an offering off-course aren’t unheard of outside of the SPAC realm either. Nevertheless, this situation certainly raises a lot of questions about how future SPAC filings will – or will not – be processed.
– John Jenkins