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SEC panel weighs stricter SPAC disclosures, citing conflicts of interest

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Aug 27, 2021

On August 27, 2021, CFO Dive released an article with insights on the risks flagged by SEC chair Gary Gensler in May to investors posed by SPACs and said the agency will investigate how the shell companies raise cash from the public and merge with target companies.

In order to comply with the new guidance, sponsors need to hire accountants and auditors to value the warrants each quarter using a complex calculation. When treating warrants as equity, sponsors make a simpler, up-front calculation.

Based on the draft document, the advisory committee would recommend SPACs be required to:

  • describe the role of its sponsor (including “insiders or affiliates such as celebrity sponsors/advisors”), their “expertise and capital contributions,” and any potential conflicts of interest, according to the advisory committee’s draft document;
     
  • enable investors to gauge risks by providing “plain English” disclosure about stages in the SPAC process, including the “promote” to be paid to sponsors and the impact on dilution of shares and;
     
  • detail “the mechanics and timeline of the SPAC process,” including a description of the asset to be purchased, events required during the next two years for the asset to appreciate and the shareholder approval process at the time of de-SPAC.

Review the article on the CFO Dive's website.

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