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US SEC Backs Crackdown on SPAC Disclosures

Investor advisory committee calls for increased enforcement of disclosure rules, including in relation to the sponsor’s role.

A US Securities and Exchange Commission (SEC) investor advisory committee has endorsed recommendations to more strictly enforce existing disclosure rules for SPACs (special purpose acquisition companies).

The committee recommended increased enforcement of disclosure rules regarding the appropriateness, expertise, capital contributions and conflicts of interest of the SPAC sponsor, as well as requirements for ‘plain English’ to be used in the SPAC registration statement.

The committee also suggested that requirements for clear descriptions of the mechanics and timeline of the SPAC process be enforced, including disclosures relating to how shareholders can vote.

Disclosures on the target and opportunity search process and its related risks should also be enforced, along with disclosures about the pre-SPAC due diligence the sponsor will agree to conduct on the target company’s accounting practices and audit history.

The committee also recommends the SEC conduct and publish an analysis of the SPAC industry and the players in the various SPAC stages, including their compensation and incentives.

While the recommendations are characterised as “preliminary”, they are expected to help SEC staff craft new regulations for SPACs, in line with comments from chairman Gary Gensler in June stating that rule changes were coming.

The committee intends to revisit SPAC governance and may offer additional suggestions for reform as more data emerges, it said in the recommendation.

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