DealLawyers.com Blog

In a recent blog on TheCorporateCounsel.net, Liz briefly noted an SEC enforcement proceeding targeting private fund adviser Perceptive Advisors LLC for undisclosed conflicts of interest relating to SPAC sponsor-related compensation. The case highlights the agency’s concern about inadequate disclosure of SPAC-related conflicts, and this excerpt from the SEC’s press release announcing the proceeding summarizes the allegedly undisclosed conflicts at issue:

The Securities and Exchange Commission today charged New York-based investment adviser Perceptive Advisors LLC with failing to disclose conflicts of interest regarding its personnel’s ownership of sponsors of special purpose acquisition companies (SPACs) into which Perceptive advised its clients to invest.

According to the SEC’s order, in 2020, Perceptive formed multiple SPACs whose sponsors were owned both by Perceptive personnel and by a private fund that Perceptive advised. The Perceptive personnel were entitled to a portion of the compensation the SPAC sponsors received upon completion of the SPACs’ business combinations. The SEC’s order finds that Perceptive repeatedly invested assets of a private fund it advised in certain transactions that helped complete the SPACs’ business combinations and did not timely disclose these conflicts.

The SEC also alleged that Perceptive failed to file a Schedule 13D reflecting its ownership of more than 5% of a public company on a timely Perceptive, without admitting or denying the SEC’s allegations, agreed to a cease & desist order, a censure, and a $1.5 million penalty.

This excerpt from Troutman Pepper’s memo on the proceeding says that it’s part & parcel of the SEC’s SPAC crackdown, and that there’s likely more enforcement activity to come:

The Perceptive order is an unequivocal sign of things to come. The SEC has made clear that it will not sit idly by in hopes that the SPAC environment will reign itself in. Rather, the SEC is taking affirmative steps to corral SPACs, whether it be by rule and amendment, the issuance of new guidance, or the direct prosecution of investment firms.

And high on their list of priorities is the potential for conflicts of interest. Diligent investors must ensure they are up to date on all new guidance and rule proposals by the SEC. Not only will these help to direct appropriate and compliant conduct, but they also will offer key insights into the SEC’s focus and the types of behavior being targeted.

– John Jenkins