SEC proposes enhanced SPAC disclosure rule

The Securities and Exchange Commission on Wednesday approved a rule proposal that would enhance disclosure requirements around special purpose acquisition companies.

In a 3-1 vote, with the commission's lone Republican, Hester M. Peirce, dissenting, the SEC proposed a series of measures aimed at bolstering disclosure and investor protection in initial public offerings by SPACs.

The proposed rules and amendments would require, among other things, additional disclosures about SPAC sponsors, conflicts of interest and sources of dilution, the SEC noted in a fact sheet. Disclosures on business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions, would also be required.

Moreover, the rules would stipulate that there is no safe harbor for companies that make misleading projections in SEC filings and in business combination transactions during a SPAC initial public offering.

"Recent events have raised renewed concerns about the use of projections, particularly with respect to de-SPAC transactions in which private operating companies disclose projections that may lack a reasonable basis," the SEC said in the rule proposal. "For example, some companies have presented projections of significant increases in revenue or market share even though they do not have any operations at the time such projections were prepared."

SEC Chairman Gary Gensler said in a statement that the SPAC target IPO is functionally "being used as an alternative means to conduct an IPO. Thus, investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud and conflicts, and when it comes to disclosure, marketing practices, gatekeepers and issuers."

If adopted, the proposed rules would more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an IPO, the SEC said in the fact sheet.

In her dissent, Ms. Peirce said the proposal "imposes a set of substantive burdens that seems designed to damn, diminish and discourage SPACs." She added, "The proposal — rather than simply mandating sensible disclosures around SPACs and de-SPACs, something I would have supported — seems designed to stop SPACs in their tracks."

A transaction known as a de-SPAC is when a company acquired through a SPAC is taken public.

The SEC's investor advisory committee in September approved recommendations regarding SPACs and expressed concerns about whether sponsors and target companies have engaged in regulatory arbitrage by using de-SPAC transactions as a path to the public markets, the SEC noted in the rule proposal.

The public comment period will remain open for 60 days following publication on the SEC's website or 30 days following publication in the Federal Register, whichever period is longer.