SPACs would face new disclosure requirements under SEC proposal

By Ken Tysiac

Disclosure rules proposed Wednesday by the SEC are designed to provide investors with more information and protection in initial public offerings by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies, such as SPACs, and private operating companies.

The proposed rules and amendments would:

  • Require additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution;
  • Require additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures related to the fairness of those transactions;
  • Address issues relating to projections made by SPACs and their target companies, including the Private Securities Litigation Reform Act safe harbor for forward-looking statements and the use of projections in SEC filings and in business combination transactions;
  • More closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering; and
  • Include a new rule addressing the status of SPACs under the Investment Company Act of 1940. SPACs that satisfy certain conditions that limit their duration, asset composition, business purpose, and activities would not be required to register under the Investment Company Act.

"Ultimately, I think it's important to consider the economic drivers of SPACs," SEC Chair Gary Gensler said in a news release. "Functionally, the SPAC target IPO is being used as an alternative means to conduct an IPO. Thus, investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud, and conflicts, and when it comes to disclosure, marketing practices, gatekeepers, and issuers."

Public comments will be welcome for 60 days following publication of the proposing release on the SEC's website or 30 days following its publication in the Federal Register, whichever period is longer.

— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at

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