SEC Staff Comments on SPACs

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Yesterday, the Staff of the Securities and Exchange Commission issued two statements relating to special purpose acquisition companies (SPACs). Neither statement provided any guidance or interpretation. Both seemed directed at emphasizing existing regulations.

The first statement from the Staff of the Division of Corporation Finance (see: https://www.sec.gov/news/public-statement/division-cf-spac-2021-03-31) noted a series of considerations that private companies should take into account before entering into an initial business combination with a SPAC. The statement highlighted some of the securities law concerns that are well understood by practitioners, including the fact that the combined company would be considered an “ineligible issuer” and, as an ineligible issuer, subject to certain communications and other limitations, the limitations on the use of Form S-8, etc. The statement also reminded issuers of their obligations regarding maintaining books and records in sufficient detail to account for transactions in and dispositions of the issuer’s assets, as well as maintaining adequate internal control over financial reporting. Finally, the Staff statement noted the requirements to comply with the continued listing rules of the securities exchange on which its securities are listed or quoted.

The second statement was issued by the Office of the Chief Accountant (see: https://www.sec.gov/news/public-statement/munter-spac-20200331). This statement also is directed at private companies, their boards of directors, and their audit committees. The statement notes that, “[a] merger with a SPAC may also raise unique challenges for a private target company seeking to become a publicly-traded company. It is critical that the board of directors, audit committee (as applicable), management, and auditors of these operating companies fully understand and fulfill their respective professional responsibilities so that companies meet their obligations under the federal securities laws and investors are provided with high quality financial reporting at the time of the merger and on an ongoing basis in subsequent periods.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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