On March 30, 2022, the SEC published proposed new rules that would, among other things, impose additional disclosure requirements on initial public offerings (IPOs) by special purpose acquisition companies (SPACs) and in business combination transactions between SPACs and private operating companies (de-SPAC transactions).

Key highlights from the SEC’s proposal include:

• Enhanced disclosure requirements concerning SPAC sponsors, potential conflicts of interest and dilution of shareholder interests. Additionally, de-SPAC transactions and any related financing transactions would require disclosure about the fairness of these transactions, including disclosure regarding any outside report, opinion or appraisal received by the SPAC or its sponsor.

• Application of underwriter liability such that underwriters in a SPAC IPO would be deemed underwriters in a subsequent de-SPAC transaction when certain conditions are met.

• Expanded definition of “blank check company” to include SPACs, effectively eliminating the availability of the Private Securities Litigation Reform Act’s safe harbor for a SPAC’s forward looking statements. This proposed change would serve to align de-SPAC transactions with traditional IPOs for purposes of nonfinancial statement disclosures and liability protections.

• Creation of a safe harbor for SPACs from “investment company” status, provided that the SPAC’s assets consist solely of cash, government securities and government money market funds prior to completion of a de-SPAC transaction. Additional conditions for the safe harbor require: (1) the SPAC to seek to complete a single de-SPAC transaction through which the SPAC will be primarily engaged in the business of a target company or companies; (2) at least one class of the surviving company’s shares be listed on a national securities exchange following the de-SPAC transaction; and (3) a de-SPAC transaction to be announced no later than 18 months after the effective date of the SPAC’s registration statement, with such transaction closing within 24 months after such effective date.

The SEC’s proposing release is available here. The public comment period will remain open until the later of 30 days after publication in the Federal Register or May 31, 2022.