The Clap The Securities and Exchange Commission (SEC) is preparing to crack down on SPACs with new rules.
Backstory SPACs have usually been criticized for inflating the business projections of the firms they seek to acquire or merge with.
They have also come under scrutiny on the matter of dilution, as investors complained that SPAC processes can leave investments open to unexpected losses if the company decides to issue more stock.
The deets The new rules could see SPACs open to investor lawsuits if investors feel like the SPAC’s future forecasts were unreasonably high.
Another rule to combat dilution is enhanced procedures for conflicts of interest, fee responsibilities & the dilution of investor holdings.
The rationale Since SPACs provide an alternative path to going public than thorough traditional IPOs, then “ investors deserve the protections they receive from traditional IPOs”, said SEC Chair Gary Gensler.