WASHINGTON, D.C.—Today, the U.S. Securities and Exchange Commission (SEC) adopted final rules to enhance investor protections in initial public offerings by special purpose acquisition companies (SPACs) and in subsequent mergers between SPACs and targeted private companies. Legal Director and Securities Specialist Stephen Hall released the following statement:
“The SPAC boom in 2020 and 2021 did not live up to the hype for retail investors. The facts show that a SPAC’s sponsors and underwriters, as well as the predominantly institutional investors who offload their shares before the SPAC merges with a private company, make out fine. But the returns of retail investors who more typically hold their shares through a merger are dismal. In one study, the mean- and median-adjusted returns of SPAC shareholders who held through the SPAC merger were -64% and -88%, respectively. The rules the SEC adopted today require greater disclosures regarding SPACs and their merger transactions and better protect retail investors from these complex, risky, and often predatory investments.
“The SEC’s final rule will protect investors by reducing the information asymmetries between investors in SPACs and investors in traditional IPOs. It follows the basic principle that ‘like’ investment transactions should be treated alike. The enhanced disclosures at both stages of the SPAC process will better enable investors to weigh the merits of a SPAC investment. They will cover basic material information that all investors need, including disclosures about conflicts of interest, compensation, and potential dilution that investors face. The final rule will also enhance accountability by broadening the universe of participants who are liable for misrepresentations in registration statements issued in SPAC transactions. And it will clamp down on abuses in baseless or misleading forward-looking statements and projections by requiring more disclosure and eliminating a safe harbor.
“We commend the SEC for these reforms as they will better protect investors, put similar investment opportunities on similar regulatory footing, and ultimately maintain the investor confidence in our markets that has been so critical to their extraordinary success for nearly a century.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.