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SEC Eyes Guidance on SPAC Projections, Clarity on Liability Shield

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According to three people familiar with the discussions, the US securities regulator is considering new directions to contain growth projections made by blank check listed companies and specify when they can benefit from certain legal protections.

The previously unreported measures weighed by Securities and Exchange Commission (SEC) staff would intensify its crackdown on the spree of transactions in Special Purpose Acquisition Companies, or SPACs, which it says puts investors at risk.

The PPCS market had already started to falter after the SEC suggested earlier this month that warrants issued by PSPCs should be accounted for as liabilities rather than equity instruments, and the potential new forecast could make this worse. slow-down.

Wall Street’s biggest gold rush in recent years, PSPCs are publicly traded shell companies that raise funds to acquire a private company and go public, allowing targets to avoid more onerous regulatory controls an initial public offering.

A record $ 100 billion has already been raised by US PSPCs – also known as blank check companies – so far this year, while the value of PSPC mergers and acquisitions has hit a record high. $ 263 billion, according to Dealogic data.

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Over the past year, companies such as the sports betting platform DraftKings Inc., electric truck maker Nikola Corp. and the owner of Playboy PLBY Group were made public through SPAC mergers.

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The boom caught the attention of the SEC which issued a number of warnings on PSPC marketing and investor communications.

PSPC’s earnings growth projections are among the concerns it has flagged. SPAC sponsors say projections are important to investors, especially when the targets are unprofitable startups, but investor advocates say they are often overwhelmingly optimistic or misleading.

Additionally, the SEC is considering guidance to clarify when key liability protection for such forward-looking statements applies to PSPCs, the three sources said.


The safe harbor created by the Private Securities Litigation Reform Act of 1995 protects listed companies against shareholder disputes provided that forward-looking statements are made in good faith, identified as such, and worded in cautionary language.

While the Safe Harbor does not apply to IPOs, PSPC sponsors have generally operated on the basis that it applies to PSPC agreements and have relied heavily on it to make growth projections.

But some lawyers say the SEC’s safe harbor rules are ambiguous and that the SEC’s acting chief financial officer, John Coates, earlier this month questioned its application to the PSPC agreements.

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He said that PSPC targets “have no more track record” than private companies doing IPOs, raising questions about the potential liability of sponsors and other parties involved in the transactions.

The SEC guidelines would seek to clarify the conditions under which the Safe Harbor applies, the sources said. These changes would likely prompt more due diligence and caution on the part of PSPC negotiators who fear incurring liability, people said.

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The SEC has not substantially changed the definition of “blank check company” since the 1995 law was passed, the agency said.

The changes are being discussed by staff in the SEC’s corporate finance division, but it was not clear whether the agency’s management would support them, one of the sources said.

The sources declined to be identified as the discussions are private.


While Coates said there were “significant” issues with some PSPC agreements, he also pointed out that it was neither pro nor anti-PSPC.

In addition to recent accounting guidelines and warnings on projections, marketing and investor communications, the SEC has launched an investigation into how Wall Street banks manage transaction risk and is surveying electric vehicle manufacturers who became public through the PSPCs.

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PSPC’s boom was fueled in part by easy monetary conditions, with central banks pumping money into pandemic-hit economies, while PSPC’s structure offers startups an easier way to enter. in stock exchange.

But the SEC’s scrutiny may be starting to squeeze the market. PSPCs raised about $ 17 billion in the first 20 days of January, but that fell to $ 2.5 billion during the corresponding period in April, according to Dealogic.

RBC Capital Markets’ PSPC coverage co-directors Amir Emami and Michael Ventura said valuations were stretched during the PSPC boom and that, as with other sparkling markets in the past, the sector needed to be “Reset”.

“And then when there’s a reset, it’s a hard reset. So we’re doing this reset right now, ”Ventura said.

(Report by Chris Prentice in Washington, Anirban Sen in Bengaluru and Joshua Franklin in New York edited by Michelle Price and Matthew Lewis)

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