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.
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.
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.
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.
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.
SPACs remain on everyone’s mind, especially the country’s chief regulator. On May 26, 2021, SEC Chair Gary Gensler testified before the U.S. House Subcommittee on Financial Services and General Government on “key capital market trends” that will impact SEC resources in the coming years. And the very first topic he raised – Initial Public Offerings and Special Purpose Acquisition Companies – was of no surprise to most market watchers.
If 2020 was the “Year of the SPAC,” 2021 may be turning into the year of the SPAC class action. We have already followed numerous cases where recently formed SPACs have been challenged in federal court for alleged violations of federal securities laws. Although those cases are still pending, a district court recently delivered a notable ruling on a SPAC created far in the distant past, as far as SPACs are concerned: 2017.
SPACs seem to be having their moment in the financial world, especially in 2021. In less than three months, U.S.-based SPACs have raised more money – almost $88 billion – than all SPACs combined in 2020 (which held the previous high for SPAC investment by some margin). They have even reached a level of societal notoriety, as shown by this week’s cover of New York Magazine. However, before SPACs and their supporters can carry this trend “to the moon,” the SEC chose this week to release two notices bringing SPAC fans back to earth.