SPAC Due Diligence & SEC Enforcement
After a year of watching and commenting on the recent proliferation in special purpose acquisition company (SPAC) IPOs and mergers, the SEC announced its first major enforcement action in the SPAC arena since the beginning of the explosion in mid-2020. The charges—which were accompanied by rare public comments by Chair Gary Gensler—send a clear message to market participants that the SEC will pursue all parties involved in SPAC transactions and will closely scrutinize, with the benefit of hindsight, SPACs' due diligence efforts.
The timing of the action is also particularly notable, as the SEC intervened in the middle of the merger process, after the SPAC corrected the alleged deficiencies in its registration statement, and shortly before the SEC declared the subsequently amended statement to be effective. Following the announcement of the charges, the target company replaced its CEO and the SPAC shareholders voted to approve the transaction on Aug. 11, 2021. By intervening mid de-SPAC process, the SEC clearly intended to send a message that it is closely watching the SPAC marketplace and that its policing efforts will continue.
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