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SEC Adopts Final Rules On SPACs, Shell Companies And The Use Of Projections – Part 10

On January 24, 2024, the SEC adopted final rules enhancing disclosure obligations for SPAC IPOs and subsequent de-SPAC business combination transactions.  The rules are designed to more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs.  The new rules spread beyond SPACs to shell companies and blank check companies in general.  The compliance date for the new rules is July 1, 2025.

In the first blog in this series, I provided background on and a summary of the new rules – see HERE.  The second blog began a granular discussion of the 581-page rule release starting with partial coverage of new Subpart 1600 to Regulation S-K related to disclosures in SPAC IPO’s and de-SPAC transactions – see HERE.  The third blog in the series continued the summary of Subpart 1600 and in particular the new dilution disclosure requirements – see HERE.  Part 4 continued a review of new Subpart 1600 to Regulation S-K including the new prospectus cover page and summary requirements and the de-SPAC background discussion – see HERE.  Part 5 completed the Subpart 1600 discussion – see HERE.

Part 6 covers further rule amendments impacting de-SPAC transactions including non-financial disclosures, minimum dissemination periods, requiring a target to be a co-registrant, re-determining smaller reporting company status, the PSLRA safe harbor, and underwriter status in a de-SPAC transaction – see HERE.   Part 7 delves into new Rule 145a for business combinations with any shell company, not just SPACs – see HERE.  Part 8 explores Article 15 financial statement requirements for business combinations with any shell company, not just SPACs – see HERE.

Part 9 covered the new enhanced projections disclosures – see HERE, and this final Part 10 discusses the status of SPACs under the Investment Company Act.

The Status of SPACs Under the Investment Company Act

An issue that has plagued SPACs are allegations that a SPAC is a veiled unregistered Investment Company in contravention of the Investment Company Act of 1940 (’40 Act) and that its sponsors are acting in violation of the Investment Advisors Act of 1940.  The allegations stem from a practice of investing the funds held in escrow in short-term government securities and money market funds.  These investments can stem over a year, beginning at the close of the IPO and ending at the close of the de-SPAC transaction.  A slew of lawsuits have been filed alleging investment company violations, including one against Bill Ackman’s $4 billion Pershing Square Tontine Holdings, Ltd., the largest SPAC in history to date.

Section 3(a)(1)(A) of the ’40 Act defines an “investment company” as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities.  Depending on the facts and circumstances, SPACs could meet the definition of “investment company.” To assess a SPAC’s status as an investment company, the SEC generally looks to the SPAC’s assets, the sources of its income, its historical development, its public representations of policy, and the activities of its officers and directors (known as the “Tonopah factors”).

To address these concerns originally the SEC had proposed a limited safe harbor from the ’40 Act for SPACs that satisfy certain conditions, including the nature and management of SPAC assets; SPAC activities, including related to the de-SPAC transaction; and duration limitations.  However, the SEC determined not to adopt the proposed amendment and instead to issue guidance on facts and circumstances that are relevant to determine whether a SPAC meets the definition of an investment company under the ’40 Act, including applying the Tonopah factors.

The SEC breaks down its guidance by factors, as follows:

The Nature of SPAC Assets and Income

A SPAC may hold, or propose to hold, assets that would weigh heavily in favor of it being an investment company. For example, if a SPAC were to invest in corporate bonds, or not engage in a de-SPAC transaction but instead acquire a minority interest in a company with the intention of being a passive investor, it could be deemed an investment company.  Likewise, a SPAC whose income was primarily derived from investment assets, would support a finding that the SPAC is an investment company.

On the other hand, a SPAC that holds only the sort of securities typically held by SPACs today, such as U.S. Government securities, money market funds and cash items prior to the completion of the de-SPAC transaction, and that does not propose to acquire investment securities, would be more likely not to be considered an investment company under the ’40 Act.

Management Activities

The actions of a SPACs officers, directors and employees can support a finding that a SPAC is an investment company.  For example, if management did not actively seek a de-SPAC transaction or spent a considerable amount of time actively managing the SPACs investment portfolio.  Further, depending on the facts and circumstances, the management of a SPAC also could cause SPAC sponsors to come within the definition of “investment adviser” in the Investment Advisors Act.

An ”investment adviser” is generally any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or any person who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.


While the duration of a SPAC is not the sole determinant of its status under the Investment Company Act, a SPAC’s activities may become more difficult to distinguish from those of an investment company the longer the SPAC takes to achieve its stated business purpose. For example, when a SPAC operates without completing a de-SPAC transaction with a target company, particularly where its assets are substantially composed of and its income derived from securities, its duration may indicate that its historical development is that of an investment company even if its representations say otherwise.  Similarly, the longer that a SPAC takes to achieve its stated business purpose, the more questions arise as to whether its officers, directors, and employees are more engaged in achieving investment returns from the securities the SPAC holds rather than in achieving the SPAC’s stated business purpose.

Generally, a SPAC that takes longer than 12-18 months to enter into a contract with a target company could be considered an investment company.

Holding Out

A SPAC that holds itself out in a manner that suggests that investors should invest in its securities primarily to gain exposure to its portfolio of securities prior to the de-SPAC transaction would likely be an investment company under the definition in section 3(a)(1)(A).

Merging with an Investment Company

If a SPAC were to engage or propose to engage in a de-SPAC transaction with a target company that meets the definition of investment company, such as a closed-end fund or a business development company, the SPAC is likely to be an investment company under section 3(a)(1)(A).

The Author

Laura Anthony, Esq.

Founding Partner

Anthony, Linder & Cacomanolis

A Corporate and Securities Law Firm


Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

Contact Anthony, Linder & Cacomanolis, PLLC. Inquiries of a technical nature are always encouraged.

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Anthony, Linder & Cacomanolis, PLLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.

© Anthony, Linder & Cacomanolis, PLLC


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