Washington, D.C., June 10, 2022 – In a comment letter filed today on new rules and rule amendments proposed by the Securities and Exchange Commission (SEC) related to special purpose acquisition companies (SPACs), SIFMA expresses support for increased disclosure related to SPAC transactions proposed by the SEC.  However, SIFMA also expressed significant concerns about newly proposed Rule 140a, which relates to gatekeepers in de-SPAC transactions.

“We are supportive of the transparency piece of these proposals, but we disagree on the policy and law regarding the proposed expansion of underwriter liability,” said Kenneth E. Bentsen, Jr, SIFMA president and CEO.  “We believe newly proposed Rule 140a contradicts and disregards the extensive legislative and judicial precedent regarding what it means to be a statutory underwriter.  We further note that the SPAC IPO and de-SPAC transaction are two entirely separate distributions of securities.  In our view, the SEC lacks the statutory authority to enact proposed Rule 140a.”

SIFMA agrees with the SEC that investors require useful and clear information in deciding whether to purchase securities in the SPAC IPO or to trade in the secondary market for post-IPO SPAC securities.  They likewise need such information when making voting, investment and redemption decisions in a SPAC’s subsequent business combination transaction with one or more private operating companies, which is known as a de-SPAC transaction.

Newly proposed Rule 140a, in effect, treats an underwriter’s involvement in a fully completed distribution (the SPAC IPO) as central to assigning underwriter status months or even years later when the de-SPAC takes place.  That subsequent underwriter status, and consequent liability, arises in a separate and distinct distribution (the de-SPAC transaction) of the securities of the combined company in a business combination involving the SPAC and one or more operating companies.  The proposed rule thus attempts to impose underwriter status on a new group of persons:  banks that the proposed rule would deem to be underwriters of the de-SPAC transaction under Section 2(a)(11) of the Securities Act because they underwrote the earlier SPAC IPO.

SIFMA opposes this proposed rule because it:

• stretches the statutory definition of “underwriter” in Section 2(a)(11) of the Securities Act beyond its limits, ignoring the statutory text, legislative history and judicial interpretations of its meaning;
• runs afoul of multiple other provisions of the Securities Act, by incorrectly deeming the SPAC IPO and the later de-SPAC transaction to be one single distribution of securities;
• conflicts with the Commission’s proposed Rule 145a, which recognizes that the SPAC IPO and the subsequent de-SPAC transaction are two distinct distributions, subject to distinct registration requirements under the Securities Act;
• conflicts with longstanding policies and practices of the SEC and its staff, which permit the initial listing of securities on U.S. stock exchanges and allow investors to make purchase, sale and voting decisions without attempting to impose Section 11 underwriter liability on any persons; and
• violates the Administrative Procedure Act (the APA), because proposed Rule 140a is an unreasonable interpretation of the unambiguous text of Section 2(a)(11).

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development.

SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).