De-SPAC Transaction Liability – A Public Statement from the CorpFin Acting Chair
By George Wilson
On April 8, 2021, Acting CorpFin Director John Coates issued a Public Statement – “SPACs, IPOs and Liability Risk under the Securities Laws.”
Mr. Coates briefly reviews how SPACs, as shell companies, raise capital in an IPO and use this capital to acquire a private company in a “de-SPACing transaction.” The de-SPACing transaction is structured so that the SPAC’s public company status and exchange listing survive to the combined entity. Given the volume and complexity of these transactions, Mr. Coates affirms that the CorpFin staff is “continuing to look carefully at filings and disclosures by SPACs and their private targets.”
He then provides a thoughtful discussion about legal liabilities in disclosures surrounding de-SPACing transactions. He addresses various “claims” that de-SPACing transactions present reduced liability compared to a traditional IPO transaction. As an example, part of the discussion addresses how the 1995 Private Securities Litigation Reform Act applies to disclosures, particularly projections, in de-SPACing transactions. Mr. Coates explores the definition of initial public offering and whether a de-SPACing transaction, where a private company is seen by the public for the first time, could be an initial public offering as contemplated in the 1995 Act. If this were the case, the 1995 Act safe harbors might not apply to de-SPACing transactions.
There is much relevant discussion along with suggestions for next steps in Mr. Coates statement.
As always, your thoughts and comments are welcome.