The past two years saw electric vehicle startups merging with a publicly traded shell company, but SEC's new regulations could place a few speed bumps for these companies to becoming and maintaining a SPAC.
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GRUENHEIDE, GERMANY - MARCH 21: Newly completed Tesla Model Y electric cars stand at the new Tesla Gigafactory electric car manufacturing plant on March 21, 2022 near Gruenheide, Germany.
New Rules for Transparency
The U.S. Securities and Exchange Commission will finalize a 60-day public comment period containing the proposed guidelines for SPACS on Tuesday. The guidelines were specifically set for marketing practices, disclosures, and third-party oversight, as reported first by Tech Crunch.
Once these guidelines are approved, there will be more challenges of entry to becoming a SPAC, which is similar to the regulated burdens placed on companies that seek the traditional IPO route.
SEC Chairman Gary Gensler said in a statement back in March, that these guidelines will ensure the protection of investors in these vehicles "similar to those when investing in traditional public offerings.
He added that it will strengthen protections for current investors and prevent SPACS from employing "overly optimistic language" or "over-promise future results" to gain the interest of investors.
One of the most important changes in the guidelines will require companies to have financial statements for SPACS aligned with those of traditional IPOS, which entails more disclosure and transparency.
The rules will require gatekeepers like auditors, lawyers, and many more to bear responsibility for their work such as assuming liability for the registration statements that SPACS should file ahead of a target IPO.
Gensler said that these new rules will enable the function to "police fraud" and "ensure the accuracy of disclosure to investors."
Standard Law School professor Michael Klausner said in a statement with Tech Crunch that these proposed regulations are a big step towards the "right direction", particularly if SPACS will be required to "disclose the extent to which their shareholders' equity is diluted at the time of the merger."
The new guidelines are expected to be finalized in the second half of 2022. Amid the processing of the guidelines, SPAC Research found that some of the 600 SPACS currently looking for a company to acquire had deals that were already halted.
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Why Did SEC Propose These Guidelines?
According to Tech Crunch, pre-revenue startups that take a shortcut to an IPO before selling a vehicle have caused several troubles.
For instance, the commercial EV maker Electric Last Mile Solutions has had no auditor for the last three and a half months. The company went public in June last year via a $1.4 billion worth of merger with Forum Merger III. But an SEC filing said that it could run out of cash in June if it does not find funding as soon as possible.
Electric Last Mile Solutions could be delisted if it does not file its late 2021 annual report and Q1 2022 financial report. The company cited the delay due to issues with its accounting firm, BDO.
The company and the accounting firm had a public spat regarding the EV maker's scheme to buy discounted shares pre-mergers.
Its board found out that they bought company equity without independent valuation, which ultimately led to the departure of the company's CEO and chairman back in February.
The issue prompted an SEC investigation into the company last March.
If the SPAC does not submit its reports and comply with the regulations on Tuesday, SEC could delist the company.
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This article is owned by Tech Times
Written by Joaquin Victor Tacla
