Firm Settles SEC Charges for Pre-IPO Misrepresentations

A firm and its controlled special purpose acquisition companies ("SPAC's") settled SEC charges for making materially false and misleading statements in pre-IPO filings. 

According to the settlement Order, one of the SPACs filed a Form S-1 and prospectus falsely stating that it had not initiated any substantive discussions with potential business combination targets. The SEC found that at the time of the statement, the firm's personnel had already begun talks with potential targets. Further, the SEC said these discussions continued throughout the period leading up to the SPAC's initial public offering.

The SEC found that another SPAC under the firm's control, filed a Form S-1 and prospectus also falsely claiming no prior substantive discussions with business combination targets. The SEC found that the firm's personnel had initiated discussions with targets, including talks explicitly considering the SPAC as the acquisition vehicle. The SEC said the SPAC's business combination proxy statements also contained false statements about its interactions with the target.

As a result, the SEC found that the firm violated Securities Act Sections 17(a)(2) and (3) ("Fraudulent Interstate Transactions"), Exchange Act Section 14(a) ("Proxies") and Rule 14a-3 ("Information to be furnished to security holder").

To settle the charges, the firm agreed to (i) cease and desist from committing further violations and (ii) pay a civil money penalty in the amount of $6.75 million.

Commissioner Mark T. Uyeda dissented from the SEC charges, citing his previous dissents regarding SPAC misstatements surrounding merger discussions. (See here and here.) Mr. Uyeda argued that the alleged misstatements were not "material," as SPACs are inherently focused on acquiring companies, and merger talks are part of their normal operations. He also pointed out that SPAC investors are protected by redemption rights, reducing the potential for investor harm. Mr. Uyeda concluded that the SEC should consider the "unique nature" of SPACs before bringing such charges.