Acting Director of SEC Division of Corporate Finance Explores SPAC Disclosure Liability

In the past six months, there has been a surge in the use and popularity of special purpose acquisition companies (SPACs) in the U.S. securities markets, which has been driven, at least in part, by strong demand from the hedge funds sector. With the unprecedented surge has come heightened scrutiny, and new issues with both standard and innovative SPAC structures keep surfacing. In connection with the above, SEC staff continue to examine filings and disclosures made by SPACs and their targets, seeking clearer disclosure and providing guidance to registrants and the public, noted John Coates, Acting Director of the SEC Division of Corporate Finance in a recent public statement. Those efforts are to enable informed investment and voting decisions about these transactions. In his remarks, Coates explored the SPAC structure; the difference between its ultimate business combination and a traditional IPO; legal liability related to disclosures in SPAC transactions; the application of the safe harbor in the Private Securities Litigation Reform Act to SPACs; and a recommended path forward for the SEC in this area. His remarks provide valuable insight to any fund manager that is investing – or considering an investment – in SPACs. This article analyzes Coates’ statement. For coverage of recent SEC speeches, see “Acting SEC Chair Outlines Commission’s Approach to ESG” (Apr. 1, 2021); and “Can Reddit's Influence Be Regulated? SEC Commissioner Discusses Recent Market Volatility” (Mar. 18, 2021).

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