Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

U.S. financial firms push back on SEC bid to rein-in blank check company deals

Stock Markets Jun 14, 2022 09:21AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: People exit the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C., U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly/File Photo

By Katanga Johnson

WASHINGTON (Reuters) - U.S. financial industry groups are pushing to water down a draft Securities and Exchange Commission (SEC) rule aimed at reining-in special purpose acquisition companies or SPACs, arguing it could kill the industry.

    The American Securities Association (ASA), the SPAC Association and the CFA Institute are among groups warning that the SEC's proposed March rule would create too much liability for parties involved in SPAC deals, and as such goes further than traditional initial public offering (IPO) and M&A rules.

The deadline for submitting comments to the SEC was Monday.

"The agency should protect investors, but don't kill industry," said Kurt Schacht, Head of Advocacy at professional investor group the CFA Institute, adding his organization has urged the SEC in a comment letter and in meetings not to regulate SPACs out of business.  

Wall Street's biggest gold rush of recent years, SPACs are shell companies that raise funds through a public listing with the goal of acquiring a private company and taking it public.

The process allows the target to sidestep the stiffer regulatory scrutiny of a traditional IPO, sparking criticism that many deals are of poor quality or suffer from lax due diligence, and in turn have left investors nursing losses.

Investment banks have raked in billions of dollars feeding a frenzy in SPAC deals while putting little of their own cash at risk, Reuters reported in May, although some banks have stepped back from SPAC deals following the SEC proposal.

That draft rule aims to offer SPAC investors protections similar to those they would receive during the IPO process. It would increase the liability for parties involved in such deals, remove a legal safe harbor for earnings projections, and boost investor disclosures.

"If you add up all of that, it's going to certainly make people a little bit more skittish in using SPACs," said Morris DeFeo, a partner at law firm at Herrick, Feinstein LLP who advises SPAC sponsors and target companies.

In particular, the rule would enhance disclosures about the target takeover, known as the "de-SPAC" transaction, including by requiring the sponsor to explain whether the proposed deal is fair to investors and has been vetted by third parties.

Anna Pinedo, a partner at Mayer Brown who advises SPAC sponsors, said that while the SEC wants to treat SPACs like IPOs, the proposal actually puts SPACs at a disadvantage compared to IPOs, "particularly around the de-SPAC transaction stage." The rule goes much further than many state laws and current M&A best practices, she said.

The proposal would expand liability for financial advisors in a de-SPAC transaction beyond the current rules for underwriters in traditional IPOs, the American Securities Association wrote in its comment letter.

"This risk would make it untenable for investment banks to continue advising on de-SPAC transactions," said Chris Iacovella, CEO of the ASA.

It was unclear how receptive the SEC is likely to be to such complaints. The Wall Street regulator is under pressure from some lawmakers, including leading Democratic Senator Elizabeth Warren, to crack down on the SPAC industry.

An SEC spokesperson said the agency "benefits from robust engagement from the public and will review all comments submitted during the open comment period."

Samir Kapadia, who represents the SPAC Association, said policymakers should recognize that SPACs serve a crucial market function by increasing access to capital.

"We've seen tremendous economic impact in the form of job creation and capital investment in industries such as clean energy, healthcare and technology," said Kapadia.

"The regulator needs to value the data, not the politics."

U.S. financial firms push back on SEC bid to rein-in blank check company deals

Related Articles

Faraday Future to Raise Up to $600M in Funding
Faraday Future to Raise Up to $600M in Funding By - Aug 15, 2022

By Michael Elkins - American electronic vehicle maker, Faraday Future Intelligent Electric Inc (NASDAQ:FFIE) announced on Monday that the company entered into a...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email