SPACs: Changing How The SEC Regulates Initial Public Offerings
ABSTRACT
Special Purpose Acquisition Companies (SPACs) are publicly listed holding companies formed for the purpose of merging with a private company to bring the private company public. Basically, SPACs exist to give private companies an alternative to going public besides a traditional IPO. While SPACs provide many advantages, they have come under scrutiny of the SEC due to the misaligned incentives inherent in their structure. The SEC released a public statement in 2021 stating that it was considering classifying the time when a SPAC merges with its target corporations (“De SPAC merger”) as an IPO within itself. The SEC wants to exclude statements SPAC directors and sponsors make about the target company from the safe harbor protections provided by the Private Securities Litigation Reform Act. This note examines whether the SEC has the power to interpret the definition of an IPO to include a De SPAC merger, and if so, whether the practical effect of this change will be helpful. It is doubtful the SEC could promulgate an interpretation of what constitutes an IPO, as there is no evidence in the legislative history or the text of the PSLRA that Congress intended for IPO’s definition to be changed from its plain meaning. Furthermore, there may be negative implications on many other regulations promulgated by the SEC if it was to enforce this expanded definition of IPO.