SEC Adopts New Disclosure Rules Governing SPAC IPOs and De-Spac Transactions

The use of Special Purpose Acquisition Companies (“SPAC”)[1] for going public transactions (“IPOs”) has grown significantly over the last few years. So has litigation involving SPACs. On January 24, 2024, the Securities and Exchange Commission (“SEC”) adopted new rules to widen the disclosure requirements for SPAC IPOs and subsequent transactions between SPACs and target companies (“de-spac transaction”).[2 

These rules also address the SEC’s concerns regarding these transactions’ potential for dilution[3] by requiring that registration statements disclose the sources of dilution, potential future sources of dilution and other transactions that could affect dilution such as shareholder redemptions, warrants, convertible securities or private investment in public equity (“PIPE”) transactions. 

Critically, these new rules eliminate the Private Securities Litigation Reform Act’s (“PSLRA”) safe harbor protection for forward-looking statements made by SPACs. Prior to the rules' passage, SPACs were shielded from liability, like all publicly traded companies, for public disclosures that are considered to be forward-looking statements/projections[4] that were accompanied by meaningfully cautionary statements. The safe harbor does not protect forward looking statements made during IPOs or offerings by “blank-check companies” and by including SPACs within that definition, the SEC eliminates these protections for SPAC IPOs and de-spac transactions. 

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[1] As Harvard Business Review explains, SPACs are publicly traded corporations with a two-year life span formed for the sole purpose of allowing a privately held business, that lacks traditional capital requirements, to go public by way of a sponsoring company or individual. See Max H. Bazerman, SPACS: What You Need to Know, Feb. 15, 2024, https://hbr.org/2021/07/spacs-what-you-need-to-know.