Creating SPACs and taking them public is "not a free pass" to avoid federal securities laws, SEC Division of Corporation Finance Acting Director John Coates said.
His statement Thursday on SPACs and liability risks related to IPOs was prompted by what he said was an unprecedented surge in special purpose acquisition companies.
"Concerns include risks from fees, conflicts and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACs," Mr. Coates said.
SEC officials will be looking closely at SPAC filings and asking for clearer disclosure, he added. They are also considering next steps, including rule-making to "recalibrate" the applicable definitions, and guidance on how safe harbors apply, if at all.
"If we do not treat the de-SPAC transaction as the 'real IPO,' our attention may be focused in the wrong place, and potentially problematic forward-looking information may be disseminated without appropriate safeguards," Mr. Coates said.
Though some SPAC advocates claim they offer an advantage over traditional IPOs when it comes to reduced securities law liability, that claim "is overstated at best, and potentially seriously misleading at worst," he said, with potentially higher liability risks given the potential for conflicts of interest.
Taking companies acquired through a SPAC public, a transaction known as a de-SPAC, may possibly fall under a safe harbor for private litigation, but it does not limit the SEC's enforcement options, and could also run afoul of state law, he said.
"All involved in promoting, advising, processing and investing in SPACs should understand the limits on any alleged liability difference between SPACs and conventional IPOs," he said.
Investors should know the SPAC sponsors' financial arrangements, procedural protections for investors and the kinds of returns to expect if there is not de-SPAC transaction or if they exit early, he said.
