SEC Proposes Rules to Regulate SPACs and Regulate Projections of Non-GAAP Measures for all Public Companies

Siddharth Bahl


On March 30, 2022, the Securities and Exchange Commission (the “SEC”) proposed rules seeking to enhance disclosure and investor protection in initial public offerings by special purpose acquisition companies (“SPACs”). Citing concerns about the typical SPAC structure and the increasing use of shell companies as mechanisms for private companies to become public companies, the proposed rules would require enhanced disclosure about SPAC sponsors, conflicts of interest, and dilution. The rules would require additional disclosure on de-SPAC transactions, including the fairness of the transactions to the SPAC investors. Among other things, the rules will also require that the target company be a co-registrant when the SPAC files a registration statement on Form S-4 for a de-SPAC transaction, opening the door for the target company to be subject to the same liability under the Securities Act of 1933 as the SPAC.

Notably for all public companies, the proposed rules would make clear that the rules generally applicable to financial measures not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), also apply to projections of non-GAAP measures. Under the proposed rules, all public companies would have to give equal or greater prominence to projections based on financial results or operating history and clearly distinguish projections based on financial results or operating history from those not based on those results or history. Companies would have to define a non-GAAP financial measure used in projections, describe the most comparable GAAP measure, and explain why the company chose to use the non-GAAP measure instead of the GAAP measure.

The proposed rules also would:

  • remove the ability of SPACs to rely on the safe harbor in the Private Securities Litigation Reform Act of 1995 for forward-looking statements;
  • subject underwriters to the same liability in a de-SPAC transaction as in a traditional securities offering; and
  • address the status of SPACs in the context of the Investment Company Act of 1940 by adding a safe harbor with specific guideposts for SPACs to follow not to be considered an investment company.

The proposed rule is summarized in the SEC’s Fact Sheet. The public comment period will be open for 60 days following publication of the proposed rules on the SEC’s website or 30 days following publication of the proposed rules in the Federal Register, whichever period is longer.

We will monitor this proposal and provide updates as appropriate. In the interim, if you have any questions about this proposal, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at 585.232.6500 or 716.853.1616.

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