SEC Proposes Rules to Enhance Disclosure and Investor Protection Related to Special Purpose Acquisition Companies (SPACs), Shell Companies, and Projections
2024-09-10 13:22:31
On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) proposed new rules and amendments to enhance disclosure and investor protection in initial public offerings (IPOs) by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies (such as SPACs) and private operating companies. The key aspects of the proposed rules are as follows:
Enhanced Disclosure in SPAC IPOs: The new rules require disclosure of compensation paid to SPAC sponsors, conflicts of interest, and sources of dilution in SPAC IPOs. Additional disclosures are also required for business combination transactions between SPACs and private operating companies, including information related to the fairness of these transactions.
Alignment of Financial Statement Requirements: The proposed rules treat any business combination transaction involving a reporting shell company (including SPACs) as a sale of securities to the shell company's shareholders and revise certain financial statement requirements applicable to transactions involving shell companies. These changes aim to align the financial statements required for private operating companies in shell company transactions more closely with those required in IPO registration statements.
Updated Guidance on Projections: The new rules update guidance on the use of projections in SEC filings and require additional disclosures when projections are used in business combination transactions involving SPACs. These disclosures will enable investors to better assess the reliability of projections and whether they have a reasonable basis.
Safe Harbor under the Investment Company Act of 1940: The proposed rules include a new safe harbor under the Investment Company Act of 1940, stating that a SPAC is not an investment company and thus not subject to the Act if it meets certain conditions related to timing, asset composition, business purpose, and activities.
If adopted, the proposed rules would have a significant impact on the current SPAC market.