Wednesday, April 20, 2022

Peirce slams SEC for inaction on SPAC filing

By Anne Sherry, J.D.

In a statement, SEC Commissioner Hester Peirce called out the agency for failing to declare effective a SPAC’s Form S-4 registration statement, tanking its plans to acquire SolarMax Technology. Peirce attributed the inaction to newfound hostility toward SPACs at the SEC, as seen particularly with a proposed safe harbor under the Investment Company Act. The commissioner wondered whether in this case, the SPAC fell victim to a non-exclusive safe harbor that has yet to be adopted.

Peirce observed that SEC staff, typically on delegated authority without input from the Commission, routinely grants requests for acceleration of the effective date of a registration statement. Because the SEC did not do so in this case, SolarMax backed out of the merger on a reasonable belief that it would not be completed by the agreed deadline of April 26. If the merger is not completed by that date, the SPAC’s securities will be suspended by Nasdaq and trade on the over-the-counter market.

According to Peirce, the failure to take a routine step fits within the larger context of hostility toward SPAC transactions, as evidenced by the SEC’s statement on accounting for warrants that caused SPACs to restate their financial statements; a statement from Chair Gensler on China-based companies; and last month’s proposals for sweeping rules pertaining to SPACs. At the open meeting on those proposals, Investment Management Director William Birdthistle said that SPACs that satisfy the proposed Investment Company Act safe harbor would enjoy some certainty with respect to their plans, but that those that fall outside the safe harbor should expect scrutiny from SEC staff.

Birdthistle also observed that the proposal marks the first time the Commission specifically addressed the question of whether SPACs are investment companies. Peirce suspects, based on the timing, that this SPAC is being held to the standard of a proposed safe harbor that has not yet been adopted. “After all,” she wrote, “the SPAC has been going back and forth with staff in our Division of Corporation Finance for months. With the end of the road finally in sight, when the SPAC sought to have its registration statement go effective, it did not get the response that virtually everyone gets at this stage of the process. That appears to be the death knell of the SPAC.”

Peirce called on the Commission to let SPACs know of problems earlier in the process, saying it is “not a good look” for the SEC to busy the SPAC with disclosure comments for months and then inform it that it must be an investment company. “We must always engage registrants in the same good faith that we expect of them,” Peirce concluded.