On March 30, 2022, the US Securities and Exchange Commission (“Commission”) proposed new rules and amendments to existing rules and forms (the “Proposed Rules,” see summary) addressing the treatment of initial public offerings (“IPOs”) by special purpose acquisition companies (“SPACs”) and subsequent business combination transactions (“De-SPAC Transactions”) between SPACs and operating companies (“Targets”). The Proposed Rules were published in the Federal Register on May 13, 2022 and the comment period has now closed.
The Securities Industry and Financial Markets Association, through its comment letter filed with the Commission, expressed support for increased disclosure related to SPAC IPOs and De-SPAC Transactions, but raised significant concerns about the newly proposed Rule 140a, which relates to gatekeepers in De-SPAC Transactions.
The Federal Regulation of Securities Committee (“Committee”) of the American Bar Association’s Business Law Section, through its comment letter filed with the Commission, addressed, among other things, the need to preserve the availability of distinct capital-raising alternatives for issuers and investors, while striking the right balance between investor protection and capital formation. In 71 pages of analysis and comment, the Committee’s letter raises concerns regarding a number of aspects of the Proposed Rules, such as the fairness determination of the De-SPAC Transaction in the Proposed Rules, making the Target a co-registrant to a merger registration statement in connection with a De-SPAC Transaction as to which there is no basis, the overly broad and unsupported interpretation regarding the entities that may be considered to be statutory underwriters under the proposed Rule 140a, the amendments that would remove the current safe harbor under the Private Securities Litigation Reform Act of 1995 for De-SPAC Transactions, and the proposed Investment Company Act safe harbor.