During the annual Practising Law Institute’s SEC Speaks, Commissioner Lee discussed the state of public markets and public offerings. The Commissioner addressed the shift toward continued reliance on the private markets rather than the public markets for capital raising, as well as the decline in the number of IPOs. While the Commissioner noted that many theories have been advanced to explain the decline in the number of IPOs and the decline in the number of smaller IPOs, she focused on the deregulation of private markets, but did not offer additional insights to support this view.
The Commissioner commented favorably on alternatives to the traditional IPO, including direct listings and mergers with SPACs. With respect to direct listings, the Commissioner noted that the currently proposed changes that would allow an issuer to raise capital in conjunction with a direct listing bear close scrutiny. The Commissioner highlighted two important issues: the extent to which financial advisers assisting issuers with direct listings undertake any gatekeeper functions like diligence and the “tracing” issues that have now been raised in the context of litigation. The Commissioner noted that “the breadth of the statutory definition of “underwriter” may, depending on the facts and circumstances, be sufficient to encompass the activities of a financial advisor in a direct listing.” She also noted that while one district court decision has held that the Securities Act Section 11 tracing requirement does not apply to a direct listing, the issue remains subject to appeal, and the SEC should consider whether investors are sufficiently protected under Section 11 when it comes to direct listings.
The Commissioner also addressed the issue du jour, SPACs. She noted that the SEC should focus on SPAC risk disclosures and disclosures related to sponsor compensation. These comments are similar to those made by Chair Clayton during a recent CNBC interview. Commissioner Lee went further though, suggesting that the SEC should consider whether there are ways to align the interests of sponsors and investors to ensure that sponsors are incentivized by the quality of any potential target. See the full text of the prepared remarks here.