SEC Adopts Final Rules Enhancing Disclosure for SPAC IPOs and De-SPAC Transactions
Author: Destiny Aigbe
October 9, 2024
In January 2024, the SEC implemented new rules designed to strengthen disclosure obligations for SPAC (Special Purpose Acquisition Company) IPOs and de-SPAC transactions. The new regulations are aimed at aligning SPAC transactions with the more stringent disclosures required in traditional IPOs, minimizing risks, and enhancing transparency for investors. These rules are not just limited to SPACs but extend to shell companies and blank check companies in general.
Key Features of the New Rules:
- Enhanced Disclosure Requirements: SPACs and de-SPAC transactions must adhere to stricter disclosure standards, ensuring that potential investors are well informed about the associated risks and potential conflicts of interest. This includes financial projections, dilution risks, and other financial and non-financial disclosures.
- Co-Registrant Requirements: Target companies in de-SPAC transactions must now be co-registrants, increasing the accountability and accuracy of disclosed financial information.
- Underwriter Liabilities: The new rules redefine the responsibilities of underwriters in de-SPAC transactions, placing greater emphasis on their liability in the process, aligning with traditional IPOs.
- Investment Company Act Concerns: One major issue that has surfaced is whether SPACs qualify as investment companies under the Investment Company Act of 1940. SPACs have often placed their IPO proceeds into government securities and money market funds, raising concerns about their status as unregistered investment companies. The SEC has provided guidance based on specific factors, such as the nature of SPAC assets, duration, and management activities, to determine if a SPAC meets the definition of an investment company.
- SPAC Duration and Operations: The longer a SPAC remains inactive or delays the completion of its de-SPAC transaction, the more likely it is to be classified as an investment company. SPACs are now expected to complete their business combinations within 12 to 18 months to avoid such scrutiny.
- Safe Harbor Protections: While the SEC originally proposed a limited safe harbor for SPACs, the final rules instead provide case-by-case guidance, meaning SPACs must carefully manage their operations and disclosures to avoid falling under the Investment Company Act’s restrictions.
Conclusion: The new SEC rules, effective July 1, 2025, significantly elevate the compliance bar for SPAC IPOs and de-SPAC transactions. The regulations are set to protect investors by enforcing rigorous disclosure standards, curbing potential conflicts of interest, and ensuring greater accountability for both SPACs and their target companies.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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