Over-Ruled: How Rule 145a Stretches the Securities and Exchange Commission’s Authority to Regulate SPACs
ABSTRACT
Special Purpose Acquisition Companies (SPACs) are publicly traded shell companies designed to merge with a private operating company, thereby bringing that company into the public market. SPACs were first designed as an alternative to an initial public offering (IPO) and took the United States markets by storm during the COVID-19 pandemic. Under the Biden administration, the Securities and Exchange Commission (Commission) Chair Gary Gensler expressed concerns about SPACs, citing misalignments between SPAC creators and public shareholders. In January of 2024, the SEC finalized a set of rules that would require greater disclosures from SPACs and regulate them similar to IPOs. This paper will analyze the statutory basis behind Rule 145a and one key element of the rule: the Commission’s authority to expand the definition of “sale” to include all de-SPACs, regardless of transaction structure. This paper argues that not all SPACs involve a “sale” as defined by Commission, and thus, the Commission does not have the authority to promulgate Rule 145a.