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SEC Chairman looks to tighten regulation involving SPACs

On Behalf of | Dec 14, 2021 | Securities and Compliance

The chairman of the Securities and Exchange Commission is calling for a review of the rules regarding special purposes acquisition companies, according to a report in InvestmentNews.

SEC Chairman Gary Gensler addressed the topic last week in a speech before the Healthy Markets Association. He outlined some of his concerns about SPACs, or so-called ‘blank-check’ companies, a method by which companies go public.

SPACs search for a private company to merge with and raise money from investors through an initial public offering, giving the targeted company a shorter process for being listed than a traditional IPO. In his remarks, Gensler said he believes investors may not be getting the same protections between traditional IPOs and SPACs and noted the need to mitigate what he called the “potential for information asymmetries, conflicts and fraud.”

“I’ve asked staff for proposals for the Commission’s consideration around 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,” said Gensler.

With regard to disclosure, Gensler said he had asked the SEC staff to recommend how investors can be better informed about fees, projections, dilution, and conflicts during all stages of SPACs, and how they can receive those disclosures when they are deciding whether to invest.

He added that the marketing practices used by SPACs may not always provide investors with everything they need to know. “SPAC sponsors may be priming the market without providing robust disclosures to the public to back up their claims,” said Gensler. “Investors may be making decisions based on incomplete information or just plain old hype.” He cited the need for investors to receive more complete information at the time a merger between a SPAC and its target is announced.

Finally, he added that the commission’s staff would focus on strengthening the obligations of SPAC “gatekeepers.” These could include sponsors, financial advisers, directors and accountants who may not be performing the same due diligence as investment banks that underwrite traditional IPOs.

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