On March 31, 2021, the SEC’s Division of Corporation Finance and Acting Chief Accountant issued separate public statements concerning Special Purpose Acquisition Companies (“SPACs”). In these recent statements, the SEC is putting private companies on notice of the myriad of regulatory requirements they will be subject to after becoming public companies. Whether coordinated or not, these statements continue to signal the SEC’s increased scrutiny of SPAC transactions.
The Division of Corporation Finance’s statement focuses on the “accounting, financial reporting and governance issues” that private companies should consider prior to undertaking a business combination with an SPAC. Of note, the statement highlights the following:
Similarly, the Acting Chief Accountant’s statement highlights key considerations “related to the unique risks and challenges” for a private company entering the public markets through an SPAC business combination. The statement notes that in the first two months of 2021, both the number of new SPACs and amount of capital raised has already matched 75% of the SPAC activity from last year. Some takeaways from the Acting Chief Accountant’s statement include the following:
With the proliferation of the number of SPACs in the market, the SEC is also expected to increase its enforcement scrutiny of SPAC transactions. The SEC will likely scrutinize any failure to disclose conflicts of interest or other material information associated with SPAC transactions. Additionally, misstatements and omissions in registration statements filed in connection with SPAC transactions could result in private securities lawsuits. For questions about the litigation and enforcement risks associated with SPACs, or questions about an SEC enforcement matter, please contact a member of Foley’s Securities Enforcement and Litigation Team.