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On March 30, the SEC proposed rules and amendments regarding special purpose acquisition companies (SPACs), shell companies, and projections disclosure. The proposed rules are intended to enhance investor protections in initial public offerings (IPOs) by SPACs and in subsequent business combination transactions between SPACs and private operating companies. The proposed rules will also address the treatment under the Securities Act of 1933 of business combination transactions involving a reporting shell company and amend the financial statement requirements for private operating companies applicable to transactions involving shell companies. Additionally, the SEC proposed “specialized disclosure requirements with respect to, among other things, compensation paid to sponsors, conflicts of interest, dilution, and the fairness of these business combination transactions.” The SEC issued a corresponding Fact Sheet recognizing that the rapid increase in the number of SPAC IPOs over the past two years has “heightened investor protection concerns” and raised questions as to whether certain SPACs may be investment companies subject to the requirements of the Investment Company Act. The proposed rule also includes a new safe harbor designed to “provide that a SPAC that satisfies the conditions of the proposed rule would not be an investment company and therefore would not be subject to regulation under [the Investment Company Act].”
“[I]f adopted, [the proposed rule] would strengthen disclosure, marketing standards, and gatekeeper and issuer obligations by market participants in SPACs, helping ensure that investors in these vehicles get protections similar to those when investing in traditional initial public offerings,” SEC Chair Gary Gensler said.
Comments on the proposed rule are due 60 days following publication of the proposing release on the SEC’s website or 30 days after publication in the Federal Register, whichever is later.