With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. In this way, SPACs offer private companies an alternative pathway to “go public” and obtain a stock exchange listing, a broader shareholder base, status as a public company with Exchange Act registered securities, and a liquid market for its shares. After the de-SPAC, the entity carries on its operations as a public company. SPAC shareholders typically have a vote on the so-called “de-SPAC” transaction, and many investors who purchased securities in the first stage SPAC either sell on the secondary market or have their shares redeemed before or shortly after the de-SPAC. In their second stage, SPACs complete a business combination transaction, in which the SPAC, the target (i.e., the private company to be acquired), or a new shell “holdco” issues equity to target owners, and sometimes to other investors. īut most SPACs since 2009 have gone on to identify acquisition candidates. About ten percent of SPACs have liquidated between 2009 and now. If the SPAC fails to find and acquire a target within a period of two years, the promote is forfeited and the SPAC liquidates. Initial investors also commonly obtain warrants to buy additional stock as at a fixed price, and sponsors of the SPAC obtain a “promote” – greater equity than their cash contribution or commitment would otherwise imply – and their promote is at risk. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. A SPAC is a shell company with no operations. The basics of a typical SPAC are complex, but can be simplified as follows. They will continue to be vigilant about SPAC and private target disclosure so that the public can make informed investment and voting decisions about these transactions. As customary, and in keeping with the Division of Corporation Finance’s ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. The staff at the Securities and Exchange Commission are continuing to look carefully at filings and disclosures by SPACs and their private targets. With the unprecedented surge has come unprecedented scrutiny, and new issues with both standard and innovative SPAC structures keep surfacing. Concerns include risks from fees, conflicts, and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACs, each of which is designed to hunt for a private target to take public. , Shareholder advocates – as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves – are sounding alarms about the surge. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). Five Questions to Ask Before You Invest.