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The SEC is looking at potentially misleading earnings projections made by SPAC sponsors and is looking for clearer disclosures, with an official suggesting on Thursday that the agency could issue a future rule to incorporate them.
Special Purchasing Companies, known as SPACs or blank check funds, are a hot ticket item on Wall Street.
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Investments are like quasi-IPOs. A publicly traded company uses investors’ money to buy or merge with a private company, usually within two years. In this way, the private company becomes publicly traded, offering an alternative to a traditional public offering.
The use and popularity of SPAC has grown over the past six months, John Coates, acting director of the Commission’s Finance and Corporate Finance Division, said on Thursday.
“With unprecedented growth came unprecedented control, and new problems with standard and innovative SPAC structures continue to emerge,” Coates said.
First, the SEC tracks recordings and disclosures made by SPACs and their private targets, Coates said.
Some believe that current legislation allows investments to go beyond some of the disclosure requirements of the traditional IPO process.
First, some fear that SPAC sponsors and their procurement targets present a lower legal risk for higher earnings and valuation projections. Misleading disclosures about future earnings estimates, for example, can also attract investors.
“These demands raise significant questions about investor protection,” Coates said.
However, such claims may not provide an accurate reading of current securities legislation, he added.
“Any simple request for reduced liability exposure for SPAC participants is overestimated at best and, at worst, can be seriously misleading,” Coates said.
The public can benefit from greater clarity on the legal requirements of SPAC disclosures, Coates said. He suggested that the SEC could issue a rule or provide guidance.