TheCorporateCounsel.net

The SEC’s years-long effort to address its concerns with SPACs culminated in the adoption of final rules yesterday by a 3-to-2 vote. As summarized in this fact sheet, the final rules, among other things:

1. Require additional disclosures about SPAC sponsor compensation, conflicts of nterest, dilution, the target company, and other information that is important to investors in SPAC IPOs and de-SPAC transactions;

2. Require, in certain situations, the target company in a de-SPAC transaction to be a co-registrant with the SPAC (or another shell company) and thus assume responsibility for the disclosures in the registration statement filed in connection with the de-SPAC transaction;

3. Deem any business combination transaction involving a reporting shell company, including a SPAC, to be a sale of securities to the reporting shell company’s shareholders; and

4. Better align the regulatory treatment of projections in de-SPAC transactions with that in traditional IPOs under the Private Securities Litigation Reform Act of 1995 (PSLRA).

In addition, the Commission provided guidance for assessing when SPACs may meet the definition of an investment company under the Investment Company Act of 1940 and regarding statutory underwriter status under the Securities Act of 1933 in connection with de-SPAC transactions.

The final rules will become effective 125 days after publication in the Federal Register, and compliance with the Inline XBRL tagging requirements will be required 490 days after publication of the final rules in the Federal Register.

Commission Peirce noted in her dissenting statement: “[t]he Commission has failed to identify a problem in need of a regulatory solution. To the contrary, the rule will exacerbate a problem—the shrinking pool of public companies—by closing down one road into the public markets.” In his dissenting statement, Commissioner Mark Uyeda notes in his dissenting statement: “there may be a far simpler explanation behind what the Commission is doing for SPACs: we simply do not like them. In order to achieve this desired outcome, the Commission seeks to impose crushingly burdensome regulations on SPACs as a form of merit regulation in disguise.”

We have posted the adopting release and memos regarding the new SPAC rules in the “SPACs” Practice Areas on TheCorporateCounsel.net and DealLawyers.com. We also updated TheCorporateCounsel.net Cheat Sheet to reflect the adoption of these rule changes.

– Dave Lynn