Investor protections and disclosures are always at the top of the priority list of the Securities and Exchange Commission, and the SEC recently announced enhanced disclosure and investor protection measures as they relate to shell companies, private operating companies, and special purpose acquisition companies (SPACs). According to the chair of the SEC, Gary Gensler, the SEC has certain tools that include disclosures, standards for marketing practices, and issuer and gatekeeper obligations. He believes that the SEC should leverage its tools to keep a closer eye on SPACs, which have commonly been used as a way to circumvent some of the traditional regulations related to a traditional IPO. These new rules will seek to hold SPACs to a higher standard to ensure that investors have access to the information they need to make an educated decision about how to invest their money.
New Rules and Regulations for Companies To Follow
There are a number of areas that will be targeted under the new regulations issued by the SEC. They include:
- Companies may be required to disclose additional information related to SPAC sponsors.
- Organizations could be required to disclose more details related to potential conflicts of interest.
- Additional disclosures might also be required related to business combination transactions between private operating companies and SPACs.
- Furthermore, these new rules can address issues related to projections made by SPACs and target companies.
The SEC may also be targeting a more stringent application of the Private Securities Litigation Reform Act to close some of the loopholes that SPACs have been able to take advantage of during the past few years.
The Potential Impact of These Rules
Ultimately, the goal of these new rules and regulations is to make sure that shell companies and SPACs are held to the same standards as private operating companies. Right now, private operating companies have a lot of filing requirements and disclosures that they need to follow. In the past, SPACs and shell companies might have been flying under the radar, meaning that they did not necessarily need to issue the same registration statements for an IPO.
Now, these rules may force SPACs to come into compliance with additional rules and regulations. In particular, the SEC will address the Investment Company Act of 1940, which may shine a brighter spotlight on SPACs, meaning that they might need to limit their duration, scope of business, and asset composition. It will be interesting to see what the final version of these rules looks like.
The Public Comment Period Is Open
Right now, the new rules and regulations are up for public comment on the SEC’s website. It is important for companies to think carefully about how these changes may impact them. If you are looking for a stock transfer agent or to do SEC filings, reach out to a professional with Colonial Stock Transfer for help. Ensure you understand how new SEC rules and regulations might impact your company.