SEC Chair Gary Gensler emphasized the need to provide investors in special purpose acquisition companies ("SPACs") with the same protections afforded to investors in traditional initial public offerings ("IPOs").
In remarks at the Healthy Markets Association Conference, Mr. Gensler questioned whether SPAC investors - both at the time of the SPAC "target" IPO and the SPAC's business combination - are benefiting from the protections they would receive in traditional IPO's with respect to disclosure, marketing practices, and director, officer and advisor obligations.
To address investor protection concerns, Mr. Gensler noted that he previously requested that SEC staff offer recommendations on:
- how best to disclose to SPAC investors (i) fees, (ii) projections, (iii) dilution and (iv) conflicts of interest;
- how to avoid deceptive SPAC advertising that may improperly "condition the market" in advance of an offering;
- how to harmonize the incentives between investors and "gatekeepers," such as directors, officers, SPAC sponsors, financial advisors and accountants; and
- how to address the status of gatekeepers' liability obligations in a SPAC transaction.
Commentary Steven Lofchie
Chair Gensler begins his discussion of SPACs with a philosophical principle: "like activities [should be treated in a] like [manner]." He argues that SPACs and traditional IPOs are alike, but are regulated differently, with SPAC offerings benefited by being subject to less regulation. Mr. Gensler reported that SPACs have come to account for more than three-fifths of U.S. public offerings, substantially outpacing traditional IPOs. His response to this trend, based on his starting philosophical principle, is that SPACs must be more heavily regulated. In effect, he argues that the regulatory burdens on SPAC offerings should be equal to those on traditional IPOs.
Whether SPACs are sufficiently regulated is a fair and important question for the SEC to address. However, following from Mr. Gensler's core philosophical principle, it is equally fair and important for the SEC to ask: are traditional IPOs over-burdened by regulation? The problem with Mr. Gensler's approach is not his starting point that like activities should be treated in like manner. It is that the solution always appears to be adding more regulation, rather than asking whether there is too much or too little or the right kind.
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