SEC has released new SPAC rules that target 'unreasonable' revenue projections and require more disclosures

Jump to heading SEC has released new SPAC rules that target 'unreasonable' revenue projections and require more disclosures

On Wednesday, the SEC recommended a package of measures to strengthen disclosure requirements for SPACS (or special purpose acquisition companies), following a wave of scrutiny aimed at the popular go-public vehicles whose use soared during the pandemic.

According to Jefferies, the Securities and Exchange Commission said in a Wednesday afternoon release that the proposed new regulations would require advanced disclosures regarding conflicts of interest, dilution, and SPAC sponsors, or investors who support a SPAC before its initial public offering and normally receive about 20% of its common equity.

The guidelines would also force underwriters engaged in a SPAC IPO to ultimately underwrite the following deal, which the SEC claims will encourage underwriters to take the care needed to guarantee the accuracy of disclosures.

The Defiance Next Gen SPAC ETF, which monitors the prices of IPO firms formed from blank check corporations, has fallen 33% in the last year, while the S&P 500 has risen 17%.

Following a 60-day period for public comment on the draft, the SEC will vote to adopt the rules. In August, Forbes Media announced its plans to go public through a SPAC.)

According to the SEC, several firms seeking to go public through a SPAC provided estimates of large growth in revenue or market share despite the fact that they did not have any commercial activity at the time such projections were developed.

Early in the pandemic, SPACs exploded in favor as a relatively quick and simplified alternative to regular IPOs.According to Goldman Sachs, 238 SPACs made an acquisition in 2021—by far the highest year ever—led by hot new startups such as financial firm SoFi and insurer Clover Health. Furthermore, 550 SPAC IPOs raised $150 billion in cash in 2021, with nearly two-thirds of the money raised in the first quarter—before increased SEC scrutiny slowed issuance.

For more SPAC news check out our other articles.

(As of the 1st of April, 2022, funds managed by Cohanzick Management, LLC and its affiliates do not own a position in SOFI, Clover Health or Defiance Next Gen SPAC ETF.)