This week, our corporate colleagues published a handy guide to the SEC’s new proposed rules on SPACs. Of particular note to securities watchers should be potential increases in litigation stemming from changes to the definition of “blank check company” for the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).
Major SPAC News, Rules May Be Coming This Week
On Thursday, March 24th, the Securities and Exchange Commission announced an agenda for a March 30th open meeting for the Divisions on Corporate Finance and Investment Management. The meeting has only one agenda item: SPACs, shell companies, and projections.
In December 2021, SEC Chair Gary Gensler compared SPACs to traditional
SEC Says Remedy Stops Penalty: HeadSpin Avoids Fine in SEC Fraud Action
On January 28, 2022, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the Northern District of California against HeadSpin, Inc., a Silicon Valley start-up. In the complaint, the SEC alleged that HeadSpin, though its then-CEO Manish Lachwani, engaged in a fraudulent scheme “to propel its valuation to over $1 billion by falsely inflating the company’s key financial metrics and doctoring its internal sales records.”
Post-SPAC Nikola Settles SEC Inquiry, Agrees to Pay $125 Million
Nikola Corporation stormed onto the electric vehicle scene in 2016 offering concepts for zero-emission vehicles. While the SEC does not set emission standards, they have long had standards for omissions – and Nikola is being left with a nine-figure bill.
Gensler Speaks Out on SPACs, Notes Similarities with Traditional IPOs and Hints at Future SEC Action
SEC Chair Gary Gensler made news again last week with a series of statements regarding SPACs, noting their similarities with traditional IPOs and hinting at future regulatory action aimed at these investment vehicles.
In a December 9, 2021 speech before the Healthy Markets Association Conference, Chair Gensler addressed SPACs and how the SEC staff believes they can interact with three key SEC objectives: eliminating information asymmetries, protecting against misleading information and fraud, and mitigating conflicts of interest.
House of Representatives Looks into SPACs, Focused on Protecting Investors
On November 16, 2021, the House Financial Services Committee cleared two proposals geared towards protecting investors and holding accountable offerors in connection with SPAC transactions.
Ex-Nikola Chairman Indicted for Securities Fraud
In April 2021, the SEC released several public statements that may have begun to cool a superheated SPAC market. FINRA soon followed suit, announcing in July 2021 a regulatory sweep aimed at SPACs. Now, for the first time, a criminal case has been filed in connection with a company that came to market as part of the 2020 SPAC explosion.
FINRA Lives Up To Its Name, Announces Regulatory Inquiries into SPACs
While 2021 has been exceptionally lucrative for SPAC sponsors – even more so than 2020’s “Year of the SPAC” – U.S. regulators appear emphatic that 2021 be the year of SPAC supervision. In April, the SEC released guidance on SPACs and related risks, highlighted by its novel argument that the entire lifespan of the SPAC – from IPO to deSPAC transaction – may be considered part of the offering for purposes of securities law liability. After this bombshell, it appears other regulators do not want to miss out on making their voices heard.