The SEC Proposes Rules to Enhance Disclosure and Investor Protection Related to Special Purpose Acquisition Companies, Shell Companies, and Projections.
2024-09-27 01:15:58
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 main elements of the proposed rules are as follows:
In the context of SPAC IPOs, the new rules would require disclosures regarding compensation paid to SPAC sponsors, conflicts of interest, and sources of dilution. The rules would also mandate additional disclosures concerning the business combination transactions between SPACs and private operating companies, including disclosures related to the fairness of these transactions.
The proposed rules would treat any business combination transaction involving a reporting shell company, including a SPAC, as a sale of securities to the shell company's shareholders and revise certain financial statement requirements applicable to transactions involving shell companies. These rules would align the financial statements required for private operating companies in transactions involving shell companies more closely with those required in registration statements for IPOs.
The new rules would update the guidance on the use of projections in filings with the SEC and require additional disclosures when projections are used in business combination transactions involving SPACs. These disclosures would enable investors to better assess the reliability of projections and whether they have a reasonable basis.
The proposed rules also 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 Investment Company Act if it meets certain conditions regarding timing, asset composition, business purpose, and activities.
If adopted, the proposed new rules would have a significant impact on the current SPAC market.