SPAC Enforcement Risks Increase With Enhanced SEC Scrutiny

What happened 

In a recent client alert, we discussed the dramatic rise in offerings of special purpose acquisition companies (SPACs) and some of the attendant litigation and enforcement risks. A raft of recent public statements and actions by Securities and Exchange Commission (SEC) staff reflect the agency's enhanced scrutiny of these transactions and suggest that enforcement investigations (and ultimately actions) cannot be far behind.

In late March 2021, it was reported that the SEC's Division of Enforcement had requested information from Wall Street banks regarding SPAC transactions. According to the reports, Enforcement staff requested information on topics including SPAC deal fees, compliance, reporting and internal controls. Enforcement's areas of focus may include potential deficiencies in the due diligence SPACs perform before acquiring assets, and whether payouts to sponsors are sufficiently disclosed to investors.