SEC Chairman Gensler Calls for Stricter PSPC Disclosure and Liability Rules

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Gary Gensler, chairman of the United States Securities and Exchange Commission (SEC), speaks during a hearing of the Senate Committee on Banking, Housing, and Urban Affairs in Washington, DC, United States, on Tuesday September 14, 2021.

Bill Clark | Bloomberg | Getty Images

Securities and Exchange Commission Chairman Gary Gensler presented several potential SPAC rules on Thursday that he hopes the regulator will review as it scrambles to oversee one of Wall Street’s promising ways of going public. .

Among the ideas put forward by Gensler were new rules regarding marketing practices, stricter disclosure requirements, and accountability obligations for PSPC’s “gatekeepers,” which could include sponsors, financial advisers, and other custodians. of books.

Specifically, the SEC chief said he would like to see new rules requiring SPACs to provide investors with more information about fees, expected stock dilution and disputes, as well as better ways to access to this information before an investment is made.

Above all, Gensler said he was concerned about the mismatch between the amount of information companies are required to provide through a traditional initial public offering and the required SPAC disclosures.

“Currently, I think the investing public may not get similar protections between traditional IPOs and PSPCs,” the SEC chairman said in prepared remarks. “Due to the various moving parts and the two-stage structure of PSPCs, I believe these vehicles may have additional conflicts inherent in their structure.”

Appointed by President Joe Biden earlier this year, Gensler said additional rules cracking down on marketing before proper disclosure may also be needed to help anchor the value of PSPC shares closer to the true value of the company. .

Glitzy company presentations, buzzing press releases and celebrity mentions can boost a SPAC’s equity far beyond reasonable value long before the proper disclosures are filed, said Gensler.

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PSPCs, or specialized acquisition companies, have been around for decades without much fanfare.

Also known as a blank check company, a PSPC is a shell company that raises funds and trades in the public markets while seeking to merge with a private company. Their eventual marriage will bring the private company into the public market, meaning investors in the public PSPC will have the option of owning a portion of the still private target.

Over the past two years, however, SPACs have become a popular alternative to traditional initial public offerings and a way to invest in start-ups.

The allure of possibly finding the next Amazon or Apple, before a young company entered the public market, drew billions from Wall Street in 2021. PSPCs have raised as much money as traditional IPOs. this year thanks to the support of big banks and investments. companies.

But Gensler and others fear that insufficient information about PSPC could leave investors with significant losses in the future.

While Gensler did not provide more specific details on the rules he wants to see from SEC staff, his speech reinforces Wall Street’s belief that his tenure will lead to a hands-on approach and that the president will serve as a stricter “cop on the beat”. “to Wall Street.

He said he wanted the SEC to make sure that PSPC directors, officers, sponsors and financial advisers don’t fool investors with optimistic projections just to stiffen them with a backlog of bills once the merger complete.

“In traditional IPOs, issuers typically work with investment banks,” he said. “So a lot of people think that the term ‘underwriters’ refers only to investment banks.”

“There may be some who are attempting to use PSPCs as a vehicle for arbitrating liability regimes,” Gensler continued. “Many controllers functionally perform the same role as in a traditional IPO, but may not perform the due diligence that we would expect. “

While some public SPACs have been successful on Wall Street – electric vehicle maker Lucid Group or personal finance firm SoFi, for example – a handful of exceptions have caught the attention of Capitol Hill and the SEC.

The most recent SPAC facing headaches is the one considering a merger with Trump Media & Technology Group, the fledgling social media company of former President Donald Trump.

SPAC, called Digital World Acquisition Corp., revealed in a document filed earlier this week that regulators had started asking for information on stock transactions “leading up to the public announcement of the October 20 merger deal. 2021 “.

Some of the well-known public companies resulting from the PSPC mergers include space tourism company Virgin Galactic and online real estate company Opendoor. Both have seen their equity fall by more than 30% this year.

The exclusive CNBC SPAC Post Deal index, which includes the largest PSPCs that have already completed a SPAC merger in the past two years, is down more than 33% in 2021.


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