SPAC Settles SEC Charges for Material Omissions in IPO Disclosures

A special purpose acquisition company ("SPAC") settled SEC Charges for failing to disclose discussions with a target company and its controlling shareholder about a potential business combination prior to and during the SPAC's IPO process.

In its Order, the SEC said that the SPAC claimed in its Form S-1 and prospectus filings that it had not initiated any substantive discussions with potential target companies. The SEC found that following the announcement of the proposed merger with the company, the SPAC did not adequately disclose the history of SPAC's interactions with the company. The SEC stated that "[g]iven that the purpose of a SPAC is to identify and acquire an operating business after conducting its IPO, steps a SPAC has taken in furtherance of a particular acquisition would be material to a reasonable SPAC investor, who would want to know about the SPAC’s prospects with future acquisition targets." The SEC said that "disclosures made in a SPAC’s IPO – including as it relates to any pre-IPO discussions or negotiations with future acquisition targets or concerning potential business combinations – need to be clear and accurate, and cannot be materially false or misleading."

The SEC determined that the SPAC violated Securities Act Section 17(a)(2) and (3) ("Fraudulent Interstate Transactions"), which prohibits obtaining money or property by means of any untrue statement of a material fact or any omission of a material fact necessary to make the statements not misleading.

To settle the charges, the SPAC agreed to (i) a civil money penalty of $1.5 million and (ii) an order to cease and desist from future violations of Section 17(a)(2) of the Securities Act.