Acting Director of the SEC's Division of Corporation Finance, John Coates, issued a statement yesterday that could significantly impact the SPAC market as we know it. In the statement, Coates indicated a concern that de-SPAC transactions needed to be treated as "real IPO[s]" and that companies were selecting the route in part because of a perceived lessened liability in connection with forward looking statements such as financial projections.
In addition to the well-discussed liability concerns associated with SPACs, the statement puts forth some questions and proposals that indicate a potential rethinking of the liability regime for de-SPAC transactions as practitioners have understood it to date.
- Coates has asked whether the SEC should reconsider the concept of an "underwriter". The ability to include financial projections in de-SPAC transactions has in part been driven by the lack of involvement of an underwriter in the traditional sense (i.e., an intermediary that buys and sells shares) and their liability exposure under securities laws.
- Coates also states that the safe harbor for forward looking statements, such as financial projections, provided by the Private Securities Litigation Reform Act (PSLRA) may not be available in de-SPAC transactions because such safe harbor does not cover "initial public offerings".
Notably, the statement warns practitioners that even to the extent that the safe harbor for forward looking information applies to de-SPAC transactions, it is only a safe harbor for private litigation - not SEC enforcement actions.