Comment Letter on SEC Proposed Reforms of SPACs, Shell Companies, and Projections

Abstract

In March 2022, the Securities and Exchange Commission released proposed rules for special purpose acquisition companies (SPACs), shell companies, and projections. In this comment letter, filed with the SEC, I provide a critical assessment of this proposal.

The SEC proposed far-reaching changes intended to enhance investor protections and align disclosure and liability rules in de-SPACs more closely with those in traditional IPOs. An under-appreciated feature of the proposed reforms is that they would subject de-SPACs to provisions closely modeled on Rule 13e-3 of the Exchange Act, which applies to going-private transactions, including management buyouts. Intended to tackle potential conflicts of interest and other abuses, Rule 13e-3 requires extensive disclosures about the substantive fairness of going-private transactions and must be carefully navigated by transaction planners. Although I discuss other aspects of the proposed reforms, I focus on provisions modeled on Rule 13e-3, arguing that the most onerous of these provisions ought to be applied more selectively, to those de-SPACs posing the greatest risk of conflicts (or dilution), or not at all.

Keywords: SPACs, de-SPACs, SPAC mergers, SEC proposed reforms, going-private transactions, fairness opinions

JEL Classification: G00, G30, G34, K2, K22