The Securities and Exchange Commission has warned investors and company executives about the dangers of following investors’ special-purpose acquisitions or hedge companies. This is used to merge with a private company and convert it into a public institution.
Latest warning from John Coates, the acting director of SEC’s corporate finance division, who warned executives that misinformation about the benefits of disclosure through SPAC trading was spread in the media and elsewhere.
“Some – but far from all – practitioners and commentators have stated that the advantage of SPAC over a traditional IPO is less securities liability to the goals and the corporate itself. them, ”said Coates, quoting Chamath Palihapitiya’s remark, billionaire CEO of investment company Social Capital and chairman of Virgin Galactic Holdings Inc.
In a recent interview on YouTubePalihapitiya insists that in the case of a traditional IPO “you cannot show up [financial] forecast and you cannot talk about the future of the way you want to do things – you just are not allowed. “Although public companies are protected from lawsuits related to forward-looking claims through a safety protection law passed by Congress in 1995, the law does not apply to corporations. is in the process of listing shares.
“Because the SPAC is an amalgamation of companies, you are suddenly allowed to talk about the future,” added Palihapitiya. “When you do that, you have a higher chance of being appreciated.”
Coates warned that this advice could be misleading, noting that the safe harbor clause does not protect any company from enforcement actions taken by the SEC, but only from private litigation. . Furthermore, the law does not protect companies from making false or misleading claims, such as making an incomplete forecast of company performance.
“Despite all this, one might still think [safe-harbor law] Giving something to the SPAC isn’t available for regular IPOs, Coates said, ”Coates said, continuing to note that this question has never really been tested in the courts.
Coates said that the law does not define the meaning of an initial public offering and that the courts can very well explain it so that a company doing SPAC transactions can be excluded from the safeguards. It is as safe as if it were a private company trying to sell stock to the public.
All those involved in promoting, consulting, processing and investing in SPAC should understand the limits of any perceived difference between SPAC and IPO, Coates warns. usually, ”Coates warned. “Simply put, any such confirmed difference seems uncertain.”