SEC approves tougher rules for blank-check deals

investmentnews.com:

Wall Street’s main regulator is demanding more investor protections for deals involving special purpose acquisition companies, or SPACs, tightening rules on a once-popular pathway for taking firms public. 

After surging during the Covid-19 pandemic as an alternative to traditional initial public offerings, blank-check companies have fallen out of favor. In a move that could further reduce interest, the Securities and Exchange Commissionapproved new rules Wednesday to make SPAC deals more like traditional IPOs — driving up legal risks and costs for those behind the transactions.  

Blank-check companies, which list on public stock exchanges to raise money so they can buy other companies, were touted as a faster and potentially cheaper way to do a public listing. But critics have long warned that deals can be rife with conflicts of interest and amount to an end-run of the traditional IPO process.

“Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections,” SEC Chair Gary Gensler said ahead of a vote on the plan. 

The regulations, which were firstproposed in March 2022, revoke legal protections that shielded sponsors of the deals from getting sued by investors over embellished statements. They require the later part of the transaction, the so-called de-SPAC, to include more disclosures around forward-looking projections.

Even without the new rules in place, the once white-hot market for SPACs fizzled as the SEC’s enforcement division stepped up scrutiny and interest-rate increases damped demand for risky investments. Just a few dozen blank-check companies went public last year after hundreds did so in the 2021 heyday, according