On Tuesday, the US Securities and Exchange Commission (SEC) will end a 60-day comment period on proposed rules for special purpose acquisition companies (SPACs). These rules are mostly about disclosures, marketing practices, and oversight by third parties. If approved, it will be harder for a company to become a SPAC, putting it on the same level as companies that go through the more traditional IPO process.
The most important change to the proposed rules is to make sure that the financial statements for SPACs are the same as those for traditional IPOs. This is a big step toward making things clearer. The rules also say that gatekeepers like auditors, lawyers, and underwriters should be held accountable for their work. This includes taking responsibility for the registration statements that SPACs must file before an IPO. SEC Chairman Gary Gensler said that the changes provide an important way to stop fraud and ensure investors get accurate information. If the rules are approved, they will also protect current investors better and stop SPACs from using overly optimistic language or overpromising future results to attract new investors.
The SEC thinks that new rules will be finalized in the second half of 2022. About 600 SPACs are currently looking for companies to buy, but some deals have stalled or fallen through. For example, Goldman Sachs stopped making deals in May while it waits to see how the new rules would affect them, especially if the SEC took away the “safe harbor” protections that allowed SPACs to make optimistic projections up until now.
Giving startups that haven’t made any money yet a way to go public before selling a single car has caused problems on many fronts. Current regulations are so lax that Electric Last Mile Solutions, a company that makes electric vehicles for businesses, hasn’t had an auditor in over three and a half months.
The company went public in June 2021 through a $1.4 billion merger with Forum Merger III. In an SEC filing on Friday, the company said that if it doesn’t find funding, it could run out of money in June, which is one month earlier than expected. Electric Last Mile Solutions could also be taken off the stock market if it doesn’t file its late annual report for 2021 and its financial report for the first quarter of 2022.
The company said that a bad breakup with its accounting firm, BDO, was to blame for the delay. The SEC started looking into the company in March because of the public fight over who helped the EV maker’s leaders come up with a plan to buy discounted shares before the merger. This plan led to the resignations of the company’s CEO and chairman in February.
When that news came out, shares fell below $1, and the company had to let go of almost a quarter of its employees to save money and change its plans for the rest of 2022. Now, the SPAC could be taken off the Nasdaq if it doesn’t come up with a plan by Tuesday to follow the rules.
