April Edition 2022

26 to “blank check companies.” The proposal would amend the definition of “blank check company” to include SPACs, which would have the effect of making the safe harbor unavailable for disclosure in de-SPAC registration statements, including projections. The availability of the PSLRA safe harbor in connection with de-SPAC transactions has not been considered settled law and, even if the safe harbor were available, its availability would be subject to a number of conditions. Accordingly, while the potential benefits of the safe harbor for projections disclosure in the context of de-SPAC transactions has provided some comfort to parties to such transactions in the abstract, it has never operated as a complete shield from liability and therefore we do not expect that the absence of the safe harbor will have a substantial impact on current market disclosure practices. Most significantly, the proposal would deem a SPAC IPO underwriter that “takes steps to facilitate” or “otherwise participates (directly or indirectly)” in a subsequent de-SPAC transaction “or any related financing transaction” to be a statutory underwriter for purposes of the de-SPAC transaction, greatly expanding the liability profile for a bank providing services in connection with a de-SPAC transaction. In addition, as noted above, the proposed rules would require that the registration statement filed in connection with the de-SPAC transaction register not just the offering of shares to the target company’s shareholders but also register an offering to the existing SPAC shareholders, who are deemed to be electing to receive shares at such time. As a result, if the rules are adopted as proposed, SPAC IPO underwriters would be subject to liability to a broad set of plaintiffs for any material misstatement or omission of fact in the registration statement filed in connection with the de-SPAC transaction. The SEC commentary indicates that this would apply to investment banks acting in connection with de-SPAC transactions in a number of different capacities that have not historically been understood to result in underwriter status, including acting as M&A financial advisor or capital markets advisor to the SPAC or the private operating company and as placement agent in connection with any PIPE financing in connection with a de-SPAC transaction. The scope of this proposal “could” even apply to a SPAC underwriter that simply receives its deferred underwriting compensation from the SPAC IPO in connection with the merger, while undertaking no other activities, given this deferred underwriting fee was earned at the time of the SPAC IPO. Commissioner Lee, in her statement, flatly indicated that in her view, the proposed rule will make all SPAC underwriters liable as underwriters in a de-SPAC transaction. Importantly, the proposing release conveniently characterizes this novel change in the application of underwriter liability to de-SPAC transactions as a “clarification”, thereby suggesting that banks may have had underwriter liability for past de-SPAC transactions and, in turn, opening