Risk & Compliance

SEC Chief Outlines Possible SPAC Reforms

“Functionally, the SPAC target IPO is akin to a traditional IPO. Thus, investors deserve the protections they receive from traditional IPOs."
Matthew HellerDecember 9, 2021

SEC Chair Gary Gensler

U.S. Securities and Exchange Commission Chair Gary Gensler said Thursday that SPAC investors should have the same protections as investors in traditional IPOs, citing the potential for “information asymmetries, conflicts, and fraud.”

In a speech, Gensler outlined possible options for toughening regulation of SPACs, saying he had asked SEC staff to explore “how to better align the legal treatment of SPACs and their participants with the investor protections provided in other IPOs, with respect to disclosure, marketing practices, and gatekeeper obligations.”

“Functionally, the SPAC target IPO is akin to a traditional IPO. Thus, investors deserve the protections they receive from traditional IPOs,” he told the Healthy Markets Association, a buy-side-focused not-for-profit organization.

Gensler’s comments reflected the growing concerns among regulators about the current SPAC boom. More than 580 of the blank-check companies have been launched in 2021, raising more than $155 billion — roughly the same amount as companies have raised in traditional IPOs — according to data provider SPAC Research.

The SEC has initiated several high-profile investigations into the deals in recent months, including one involving former President Donald Trump’s social media venture. The regulator has also changed accounting rules for SPACs, briefly helping slow the creation of new blank-check companies.

“While Mr. Gensler first expressed concern about SPACs in May, Thursday’s remarks provided more clarity on the SEC’s plans for updating its rules,” The Wall Street Journal reported.

Among the ideas Gensler pitched were new rules around marketing practices, tougher disclosure requirements, and liability obligations for SPAC “gatekeepers,” which could include sponsors, financial advisers, and other bookkeepers.

SPAC mergers “often are announced with a slide deck, a press release, and even celebrity endorsements,” Gensler said. “The value of SPAC shares can move dramatically based on incomplete information, long before a full disclosure document or proxy is filed.”

“It is essential that investors receive the information they need, when they need it, without misleading hype,” Gensler said, adding that he had asked staff to “make recommendations around how to guard against what effectively may be improper conditioning of the SPAC target IPO market.”

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