SEC Mulling Enhanced Investor Safeguards For SPACs

In written testimony to the U.S. House Appropriations Committee, Gary Gensler, new chair of the Securities and Exchange Commission (SEC), said stronger investor protections are needed as the number of initial public offerings (IPOs) and special purpose acquisition companies (SPACs) escalates. 

“We are in the midst of a once-in-a-generation wave of traditional initial public offerings — companies that are seeking to go public via the stock market,” Gensler said at a hearing before the Subcommittee on Financial Services and General Government. “From January 1 to May 19 of this year, nearly 400 companies filed traditional IPO S-1 forms. That is rapidly approaching the number of companies that filed for public offerings in all of 2016.”

This year has already closed 118 traditional IPOs, according to his written testimony. By way of comparison, 2016 had a total of 138. Gensler said that if filings continue at the current pace, 2021 will blow past the “dot-com peak of 2000.”

There also has been “an unprecedented surge” in companies going public via SPACs, also known as blank check companies. Gensler told the subcommittee that the SEC has received 700 S-1 filings year-to-date, with 300 completed so far. In 2016, there was just 13 total. 

The SEC’s policy and enforcement staff is “closely looking at each stage to ensure that investors are being protected,” Gensler said, adding that the agency also is looking at how SPACs fit into the SEC’s mission to “maintain fair, orderly, and efficient markets.”

SPACs have recently lost some of their appeal due to falling share prices after initial deals. Startup executives have also pointed to some SPACs failing to meet financial performance expectations. Half of the companies created through SPACs missed revenue forecasts and 42 percent saw revenues drop during the first couple of years as a public entity.

The PYMNTS IPO/SPAC Tracker indicated that many experts were anticipating that the pace of new filings would drop off. In March, there were about 109 SPAC deals, compared to just 10 SPAC deals from April 1-23. The Tracker showed that through April 23, there were 12 payment-related IPOs and 17 banking IPOs.