SEC Announces New Rules of the Road for SPACs

On March 30, the SEC announced that it was considering adopting stringent new rules to govern so-called special purpose acquisition companies, commonly known as SPACs.

The popularity of SPACs as a vehicle to take companies public, without having to undertake all the steps required for a traditional initial public offering, has grown explosively over the past couple of years (though SPAC activity has cooled substantially in 2022 when compared to 2021).

Studies have shown that SPACs, rather than promoting market efficiencies, are actually quite expensive. A late 2021 study published by the European Institute of Corporate Governance found that “costs embedded in the SPAC structure are subtle, opaque, higher than has been previously recognized, and higher than the cost of an IPO.”

Others point to spectacular SPAC failures such as the botched December 2021 IPO of BuzzFeed, where 94% of the SPAC investors withdrew their money prior to the IPO, yet the company proceeded with the IPO anyway. After an initial price spike, the shares, initially offered at $10 per share, plummeted as low as $3.86, leading to massive losses for investors, including for dozens of their long-time employees who were preventing from even trading their shares at the IPO.

The SEC’s announcement commences a 60-day comment period for the proposed new rules, and you can be sure that the financial services community, as well as investor advocates, will be watching closely and weighing in.

If you have been negatively affected by a SPAC offering, or have original information about unlawful conduct relating to a SPAC offering, and would like to discuss your legal rights with a securities attorney, please contact us at 212.203.1249 or kevin@galbraithlawfirm.com.