U.S. SEC proposes boosting blank-check company disclosures, liability
Morris F. DeFeo, chair of Herrick's Corporate Department, was quoted in Reuters discussing recently proposed SEC rules focusing on SPACs set to enhance blank-check company investor disclosures, and how it is part of a larger effort by the SEC to increase transparency of SPACs. The article stated, "The rule would require SPACs to disclose more details about their sponsors, their compensation, conflicts of interest and share dilution. It would also enhance disclosures about the target takeover, known as the 'de-SPAC,' more information, including the sponsor's view on whether the deal is fair to investors and whether the proposed transaction has been vetted by third parties. Such disclosures would have to be issued at least 20 days prior to any solicited votes on the acquisition." The article quoted SEC Chair Gary Gensler, who said, "Companies raising money from the public should provide full and fair disclosure at the time investors are making their crucial decisions to invest[.]"
"The rule would also strip SPACs of a liability safe harbor for forward-looking statements, such as earnings projections." While SPAC sponsors argue that the projections are import for investors, investor advocates take the position that they are frequently "wildly optimistic or misleading," according to the article.
Morris explained, "The elimination of the statutory safe harbor ... will cause SPAC issuers and their advisers to be more cautious in including pro forma and other financial information with respect to a proposed business combination[.]"
The article noted that if SPACs do not meet certain conditions, "they may have to register as investment companies, subjecting them to a slew of other rules, the SEC said." The conditions include "maintaining assets in certain forms, entering into a deal with a target within 18 months of the SPAC IPO, closing the transaction within 24 months and ensuring that the newly merged company engages primarily in the same business as the target."