John C. Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School. This post is based on his recent paper.
Special purpose acquisition companies (SPACs) were the financial-legal hit of 2021, before they weren’t. SPACs broke records and displaced to an extent conventional initial public offerings (C-IPOs), even as C-IPOs also boomed.
SPACs spiked, in part, because of myths about their financial attributes, which others have debunked.
(See Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. on Reg (forthcoming 2022, discussed on the Forum here); Minmo Gahng, Jay R. Ritter, Donghang Zhang, SPACs (January 29, 2021))
But SPACs also benefited from widespread and persistent circulation of several myths about SPAC law and its uncertainties. SPAC promoters falsely claimed—and continue to claim—that:
- securities regulations ban projections from being used in conventional IPOs,
- liability related to projections was lower and more certain in SPACs than it was (and is),
- the Securities and Exchange Commission (SEC) registration process makes C-IPOs slower than SPACs,
- the SEC changed SPAC accounting rules in early 2021,
- this “change” was the sole or primary reason the SPAC wave slowed, and
- the Investment Company Act clearly does not apply to SPACs.
In a paper available here, each of these myths is shown to be false.
