In the last several days, the SEC has engaged in a skirmish, and possibly an opening battle, against SPACs. A recap follows.
The first shot was fired on March 31, when the Staff of the SEC’s Division of Corporation Finance and the Office of Chief Accountant issued separate public statements about a number of risks and challenges associated with taking private companies public via “deSPAC” transactions.
The CorpFin statement covered a lot of territory, pointing out the following pitfalls, among others, facing companies that go public via a deSPAC. These pitfalls reflect that such companies are subject to rules governing shell companies that do not apply to companies going public through conventional IPOs.
- Financial statements for the target must be filed with an 8-K report within four business days of the completion of the business combination. The usual 71-day extension for such financial statements is not available.
- The combined company will not be eligible to incorporate Exchange Act reports or proxy or information statements until three years after the completion of the business combination.
- The combined company will not be eligible to use Form S-8 for the registration of securities issuable under compensation and benefit plans until at least 60 calendar days after the combined company has filed current Form 10 information. (This information is customarily included in a “Super 8-K” filed within four business days after closing of the deSPAC transaction.)
- For three years following the completion of the deSPAC transaction, the company will be unable to use some streamlined procedures for offerings and other filings, such as using a free-writing prospectus.
The statement also reminds companies that public issuers are required to maintain accurate books and records as well as internal control on financial reporting – both areas that have been the basis for enforcement actions by the SEC. Continue Reading Caveat Everybody — The SEC Takes Aim at SPACs