Congress's Proposal To Eliminate Forward-Looking Statement Safe Harbor For SPACs

The House Financial Services Committee recently released  draft legislation expressly prohibiting special-purpose acquisition ("SPACs") from using the "safe harbor" provisions of the Private Securities Litigation Act ("PSLRA") to protect themselves against liability for inaccuracies in projections and other forward-looking statements. If the draft legislation becomes law, parties to a SPAC business combination, as well as directors and officers, may be subject to additional liability for incorrect projections and other forward-looking statements used in the transaction. This may also lead to increased insurance premiums for director and officer liability insurance policies.

The "safe harbor" in the PSLRA bars private actions based on a false statement or material omission with respect to "forward-looking statements" (e.g., statements containing certain financial projections, describing the issuer's future plans and objectives, or predicting the issuer's