December 13, 2021

SPAC Regulation: “A Hard Rain’s A-Gonna Fall”

Last week, SEC Chair Gary Gensler gave a speech in which he outlined the agency’s regulatory priorities when it comes to SPACs.  Gensler started by comparing SPACs to traditional IPOs. He cited the philosopher Aristotle for the proposition that like cases should be treated alike, and his fundamental point is that since SPACs are functionally IPOs, they ought to be regulated like IPOs. Based on the substance of his remarks, it seems also seems appropriate to quote Bob Dylan – because he made it pretty clear that when it comes to upcoming SEC rule proposals for SPAC deals, “A Hard Rain’s A-Gonna Fall.”

In his speech, Gary Gensler catalogued the SEC’s concerns with disclosure, conflicts of interest, marketing practices, and the role of gatekeepers in SPAC deals.  He peppered his remarks with what’s come to be his favorite phrase – “I’ve asked the staff for recommendations” – which is another way of saying that rule proposals are on the way.  Here’s some quotes from the speech with the Chair’s specific asks:

– I’ve asked staff to serve up recommendations about how investors might be better informed about the fees, projections, dilution, and conflicts that may exist during all stages of SPACs, and how investors can receive those disclosures at the time they’re deciding whether to invest. I’ve also asked staff to consider clarifying disclosure obligations under existing rules.

–  I’ve asked staff to make recommendations around how to guard against what effectively may be improper conditioning of the SPAC target IPO market. This could, for example, include providing more complete information at the time that a SPAC target IPO is announced.

–  I’ve asked staff for recommendations about how we can better align incentives between gatekeepers and investors, and how we can address the status of gatekeepers’ liability obligations.

Of course, no speech like this would be complete without a reference to the Division of Enforcement, and Chair Gensler noted that it would continue its role as the “cop on the beat.”  SPACs have been an area of emphasis for Enforcement in recent months, and recent revelations that the agency is investigating former President Trump’s media SPAC and other high-profile SPAC deals suggests that SPACs should expect very stormy conditions on the enforcement front as well.

Gary Gensler’s also hitting social media with his take on SPACs (spoiler alert: he’s not a fan) & the need for additional regulation.

John Jenkins