SEC Adopts Final Rules On SPACS, Shell Companies And The Use Of Projections – Part 6
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
SEC Issues New Mergers And Acquisitions Related C&DI
Last week was a very busy regulatory week for the SEC, including issuing six new compliance and disclosure interpretations (C&DI) for merger and acquisition transactions, most of which directly impact SPAC business organization transactions; proposed rules on SPACs’ shell companies and the use of financial projections; proposed rules to modify the definition of “dealer” for purposes of broker-dealer registration requirements; and a new accounting bulletin impacting the accounting treatment of cryptocurrencies by exchanges. This blog will discuss the new C&DI.
Background
The rules related to disclosure obligations, including in Forms 8-K, S-4 registration statements and proxy materials, and the filing of exhibits associated with a material contract, including merger agreements, have evolved over the past few years (see here related to confidential treatment of material contracts – HERE). In March 2021, the SEC issued a statement discussing certain legal specifics associated with a SPAC, including expressing concerns regarding disclosures associated with a de-SPAC transaction (i.e., a business
SEC Footnote 32 and Sham S-1 Registration Statements
Over the past several years, many direct public offering (DPO) S-1 registration statements have been filed for either shell or development-stage companies, claiming an intent to pursue and develop a particular business, when in fact, the promoter intends to create a public vehicle to be used for reverse merger transactions. For purposes of this blog, I will refer to these S-1 registration statements the same way the SEC now does, as “sham registrations.” I prefer the term “sham registrations” as it better describes the process than the other used industry term of art, “footnote 32 shells.”
Footnote 32 is part of the Securities Offering Reform Act of 2005 (“Securities Offering Reform Act”). In the final rule release for the Securities Offering Reform Act, the SEC included a footnote (number 32) which states:
“We have become aware of a practice in which the promoter of a company and/or affiliates of the promoter appear to place assets or operations within
Proposed Crowdfunding Rules – Part I
As required by Title III of the JOBS Act, on October 23, 2013, the SEC has published proposed crowdfunding rules. The SEC has dubbed the new rules “Regulation Crowdfunding.” The entire text of the rule release is available on the SEC website.
Background
Crowdfunding generally is where an entity or individual raises funds by seeking small contributions from a large number of people. The crowdfunder sets a goal amount to be raised from the crowd with the funds to be used for a specific business purpose. In addition, a crowdfunding campaign allows the crowd to communicate with each other, thus adding the benefit of the “wisdom of the crowd.” Small businesses can particularly benefit from crowdfunding as they are not limited by restrictions on general solicitation and advertising or purchaser qualification requirements.
Title III of the JOBS Act, called the Crowdfund Act, amends Section 4 of the Securities Act of 1933 (the Securities Act), adding new Section 4(a)(6) to
