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 Proposes New SPAC Rules – Part 2
On March 30, 2022, the SEC proposed rules enhancing disclosure requirements associated with SPAC initial public offerings (IPOs) and de-SPAC merger transactions; requiring that a private operating company be a co-registrant when a SPAC files an S-4 or F-4 registration statement associated with a business combination; requiring a re-determination of smaller reporting company status within four days following the consummation of a de-SPAC transaction; amending the definition of a “blank check company” to make the liability safe harbor in the Private Securities Litigation Reform Act of 1995 for forward-looking statement such as projections, unavailable in filings by SPACs and other blank check companies; and deeming underwriters in a SPAC IPO to be underwriters in a de-SPAC transaction when certain conditions are met.
The proposed rules would require specialized disclosure with respect to compensation paid to sponsors, conflicts of interest, dilution and the fairness of business combination transactions. Further disclosures will also be required in connection with the use of projections.
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
Non-Fungible Tokens
This one has been on my list for a while and I’m finally ready to dive in – non-fungible tokens (NFTs). In July 2017, the world of digital assets and cryptocurrency literally became an overnight business sector for corporate and securities lawyers, shifting from the pure technology sector, when the SEC issued its Section 21(a) Report on the DAO investigation finding that a cryptocurrency is, in most cases, a security HERE. The SEC’s Section 21(a) Report relied on the analysis in SEC v. W.J. Howey Co. to determine when a crypto is a security, building the guardrails to conclude that all, or almost all, cryptocurrencies at that time were/are indeed a security. For more on the Howey analysis, see HERE.
Later in June 2018, the SEC gave some relief to the crypto world by announcing that Bitcoin and Ether were likely decentralized enough as to no longer be considered a security, hedging on the conclusion as
NYSE Continues To Struggle With Direct Listing Rule Changes
Late last year, around the same time that the SEC approved Nasdaq rule changes related to direct listings on the Nasdaq Global Market and Nasdaq Capital Market (see HERE), the SEC rejected proposed amendments by the NYSE big board which would allow a company to issue new shares and directly raise capital in conjunction with a direct listing process. Nasdaq had previously updated its direct listing rules for listing on the Market Global Select Market (see HERE).
The NYSE did not give up and in August of this year, after two more proposed amendments, the SEC finally approved new NYSE direct listing rules that allow companies to sell newly issued primary shares on its own behalf into the opening trade in a direct listing process. However, after receiving a notice of intent to petition to prevent the rule change, the SEC has stayed the approval until further notice. Still pushing forward, on September 4, the NYSE filed
An IPO Without The SEC
On January 23, 2019, biotechnology company Gossamer Bio, Inc., filed an amended S-1 pricing its $230 million initial public offering, taking advantage of a rarely used SEC Rule that will allow the S-1 to go effective, and the IPO to be completed, 20 days from filing, without action by the SEC. Since the government shutdown, several companies have opted to proceed with the effectiveness of a registration statement for a follow-on offering without SEC review or approval, but this marks the first full IPO, and certainly the first of any significant size. The Gossamer IPO is being underwritten by Bank of America Merrill Lynch, SVB Leerink, Barclays and Evercore ISI. On January 24, 2019, Nasdaq issued five FAQ addressing their position on listing companies utilizing Section 8(a). Although the SEC has recommenced full operations as of today, there has non-the-less been a transformation in the methods used to access capital markets, and the use of 8(a) is just
Direct Public Offering or Reverse Merger; Know Your Best Option for Going Public
Introduction
For at least the last twelve months, I have received calls daily from companies wanting to go public. This interest in going public transactions signifies a big change from the few years prior.
Beginning in 2009, the small-cap and reverse merger, initial public offering (IPO) and direct public offering (DPO) markets diminished greatly. I can identify at least seven main reasons for the downfall of the going public transactions. Briefly, those reasons are: (1) the general state of the economy, plainly stated, was not good; (2) backlash from a series of fraud allegations, SEC enforcement actions, and trading suspensions of Chinese companies following reverse mergers; (3) the 2008 Rule 144 amendments including the prohibition of use of the rule for shell company and former shell company shareholders; (4) problems clearing penny stock with broker dealers and FINRA’s enforcement of broker-dealer and clearing house due diligence requirements related to penny stocks; (5) DTC scrutiny and difficulty in obtaining clearance following
