Market Regulation

CFA Comments on SEC SPAC Proposal

CFA submitted comments on the Securities and Exchange Commission’s (SEC’s) proposal on Special Purpose Acquisition Companies (SPACs), which would require, among other things, SPACs to provide enhanced disclosures regarding compensation paid to sponsors, conflicts of interest, dilution, and the fairness of their proposed business combination transactions, clarify that the Private Securities Litigation Reform Act of 1995 (PSLRA) safe harbor for forward looking statements is not available for de-SPACs, and affirm the underwriter status of SPAC IPO underwriters in connection with de-SPAC transactions.

As stated in the comment letter, these proposed amendments would bring SPACs into closer alignment with how traditional IPOs are treated under the Securities Act of 1933 and the Securities Exchange Act of 1934 and, in doing so, provide critical transparency and accountability to the SPAC market. Accordingly, CFA expressed strong support for these aspects of the proposal, which would be particularly helpful in addressing deficiencies in the market that have resulted in significant harm to retail investors.

The proposal also includes a new safe harbor under the Investment Company Act of 1940 (ICA) that would provide special treatment to SPACs, allowing them to effectively function as investment companies for two years without having to comply with the investor protections afforded by the ICA. Because the proposed safe harbor goes well beyond the existing safe harbor for inadvertent investment companies, which imposes a 12-month time limit, CFA urged the SEC to narrow the proposed safe harbor.