SEC Proposes New Disclosure Requirements for SPACs

WASHINGTON — The Securities and Exchange Commission proposed a rule that would impose a variety of new disclosure requirements for special purpose acquisition vehicles, or SPACs, amid widespread concerns that the vehicles circumvent key investor protections.

The commission’s three Democrats voted to advance the rule Wednesday over a Republican dissent. The SEC will now accept public comments on it for at least 60 days before beginning work on finalizing a rule.

Also known as blank check companies, SPACs became very popular on Wall Street in 2020 and 2021 when they made up the majority of US IPOs. Enthusiasm for such deals has cooled this year as some companies that have gone public in this way have underperformed business forecasts they set out to attract investors.

The proposed rule would subject SPACs and the companies they acquire to similar standards to traditional IPOs, SEC officials said.

The vehicles act as pools of money listed on an exchange that can be used by a sponsor to purchase a private company. When acquired by a SPAC, the private company effectively gains access to everyday investors without providing the timely disclosures that a traditional IPO would entail.

“Functionally, the SPAC target IPO is being used as an alternative means of conducting an IPO,” SEC Chairman Gary Gensler said Wednesday. “As such, investors deserve the protections they get from traditional IPOs in terms of information asymmetries, fraud and conflicts, as well as disclosure, marketing practices, gatekeepers and issuers.”

Under the proposal the SEC is considering, blank check companies would be required to disclose information about their sponsors’ compensation, as well as the dilution shareholders might suffer if an acquisition goes through. Current rules often allow SPAC insiders to multiply their initial investment even when the companies they acquire — and other shareholders — struggle.

Private companies flock to dedicated acquisition companies, or SPACs, to bypass the traditional IPO process and get a public listing. The WSJ explains why some critics say investing in these so-called blank check companies isn’t worth the risk. Image: Zoë Soriano/WSJ

Companies acquired by SPACs and their officers and directors would be liable for misstatements or omissions in merger documents that SPACs file with the SEC. Because the proposal would make the target companies “co-registrants” with the blank check companies.

Appointed by President Biden, Mr. Gensler, after taking office last April, directed agency staff to explore ways to better protect investors in SPACs. His stated goals include leveling the playing field with traditional IPOs and eradicating conflicts of interest in the deals.

SPACs and their acquisition targets would need to release the new information to investors at least 20 days before a shareholder vote approving an acquisition.

The proposal would also tighten the rules on the forward-looking statements that SPACs are currently allowed to tout without running afoul of the SEC, to address concerns that the companies often woo investors with unrealistic growth projections.

“The idea behind this is that the parties to the transaction should not use overly optimistic language or promise future results to convince investors about the transaction,” Mr. Gensler said.

While advocates of tighter Wall Street supervision are likely to welcome the proposal, it may be too late to help investors who have already suffered losses after the SPAC frenzy peaked.

Blank check companies raised more than $160 billion last year, surpassing all previous years combined, according to SPAC Research. So far this year, they’re on track to raise a fraction of that amount. There are still more than 600 SPACs looking for offers. Those who don’t find a merger within a deadline, usually two years, have to pay money back to the investors.

If finalized in their current form, the proposed disclosure requirements would extend to existing SPACs that have yet to complete a merger, SEC officials said.

write to Paul Kiernan at

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