The SPAC market has been decidedly cooler this year – due to market conditions that are affecting all IPOs, yes – but also due to SEC skepticism that culminated in a March 30th rule proposal. As noted in this article from Bloomberg’s Preston Brewer, the proposal is causing some underwriters to reconsider work on SPAC deals. John also blogged that at least one deal died because the SEC didn’t act on the acceleration request.

In case all that still isn’t enough to dampen enthusiasm, SEC Investor Advocate Rick Fleming also recently contacted the Nasdaq and NYSE to urge more stringent listing standards for SPACs. This Fried Frank blog explains:

SEC Investor Advocate Rick A. Fleming urged Nasdaq and the NYSE to revise their listing standards so that special purpose acquisition company (“SPAC”) business combinations could only be consummated when 50 percent or more of public shares would be invested in the SPAC post-combination.

In Memoranda to the exchanges, Mr. Fleming, stated that “we have significant reservations about the consequences of the current listing standards that allow for empty voting and otherwise permit significant conflicts of interest.” He highlighted the SEC’s proposed rule to increase disclosure in IPOs by SPACs and in business combination transactions involving shell companies such as SPACs, (see prior coverage).

In the Memoranda, Mr. Fleming asserted that (i) the exchanges’ elimination of a conversion rights percentage threshold and (ii) the replacement of voting protections with registration statement risk disclosures of underfunded business combinations enabled many companies to go public even when most SPAC IPO investors had redeemed their shares. He contended that this allows the occurrence of business combinations even when assets are depleted due to the exercise of conversion rights, which in turn gives early investors economic incentives to allow low-quality deals to happen. The Investor Advocate concluded that these measures (i) enabled “empty voting” and conflicts of interest and (ii) “benefitted SPAC sponsors and sophisticated IPO participants . . . at the expense of public investors.”

For more on the ongoing ins & outs of SPAC deals, visit our “SPACs” Practice Area – where we cover SEC and exchange regulations, de-SPACs, accounting issues, litigation & enforcement, and more.

If you’re not already a member with access to these resources, sign up for TheCorporateCounsel.net online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!

– Liz Dunshee

An observant member posted this question last week in our “Q&A Forum” (#11,109):

Does anyone have insight into when the SEC will be raising the annual gross revenue cap for a company to qualify as an emerging growth company? The JOBS Act requires the SEC to index to inflation the revenue cap every five years, and the last adjustment (from $1.0B to $1.07B) was on March 31, 2017, effective April 12, 2017 when it was published in the Federal Register.

John noted:

I have not heard anything on this, but the 10th anniversary of the JOBS Act was April 5th, so I would expect the SEC to issue something in the very near future.

It’s hard to believe that the JOBS Act is 10 years old. We have Practice Areas for “Emerging Growth Companies” and for the “JOBS Act” (and the related FAST Act) for any members looking for instruction on how to apply these regulations.

– Liz Dunshee

Last week on our Proxy Season Blog, I highlighted a Goodwin analysis saying that nearly 80% of Nasdaq companies have included a board diversity matrix in their proxy statement this year, rather than waiting for the August deadline to post on their website.

For those companies that have not yet published a matrix, a new memo from Compensation Advisory Partners runs through example matrices based on the most recent Nasdaq instructions from February of this year. Here are the 6 examples – check out the memo to see what they look like:

1. Matrix showing all required components as well as supplementary info

2. Matrix that excludes categories that aren’t applicable to the company’s directors

3. Matrix that shows all required categories with additional rows below the matrix about director demographics that aren’t included in Nasdaq’s listed categories (e.g., military veterans, etc.)

4. Matrix with accompanying narrative disclosure

5. Matrix for foreign company with supplementary rows below

6. Matrix for foreign company where disclosure of race is prohibited in the home country – the company must still disclose gender stats

For Nasdaq-listed companies that go the “website posting” route for the board diversity matrix, the Nasdaq instructions require completing Section 10 of the Company Event Form (accessed through the listing center) within one day of posting the matrix on your website. You’ll need to include a link to the matrix on that form.

As John has blogged, the Nasdaq rule is being litigated – but investor expectations continue to march forward. Visit our “Nasdaq” Practice Area for details about what the listing standard requires, and visit our “Board Diversity” Practice Area and our “Institutional Investors” Practice Area for info about expectations for board diversity.

– Liz Dunshee