Wall Street's watchdog on Wednesday unveiled a draft new rule to enhance blank-check or special purpose acquisition company (SPAC) investor disclosures and to strip them of legal protection critics argue has allowed the shell companies to issue overly optimistic earnings projections, reported Financial Times.
What happened: The U.S. Securities and Exchange Commission (SEC) move is part of a broader crackdown on SPACs after a frenzy of deals in 2020 and early 2021 sparked concerns that some investors are getting a raw deal.
According to data shared by Renaissance Capital, the U.S. SPAC market experienced a wild ride in 2021, with an explosion in deals during the first half of the year that quickly cooled off in the second half. All told, 604 SPACs raised $144 billion in 2021.
Why it's important: The SEC proposal aims to close that loophole by offering SPAC investors protections similar to those they would receive during the IPO process, the SEC stated.
The rule would require SPACs to disclose more details about their sponsors, their compensation, conflicts of interest, and share dilution. It would also enhance disclosures about the targeted takeover.
The rule would also strip SPACs of a liability safe harbor for forward-looking statements, such as earnings projections.
The SEC has stepped up oversight of SPACs amid worries of inadequate disclosures and lofty revenue projections.
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