The explosion of special purpose acquisition companies (SPACs) in 2020 inevitably attracted the SEC’s attention and led to the release of numerous statements and guidance from the Commission in early 2021. The SEC’s concerns largely center on potential conflicts of interest given that SPACs and their sponsors are highly motivated to undertake business combinations within specified time periods and that potential investors must rely on them to provide full and accurate material information. Those concerns were actualized in a recent SEC enforcement proceeding against a SPAC, its sponsor and the SPAC’s target company, among others, for misleading statements and omissions in presentations to investors and various public filings made in connection with a business combination. Although the SPAC sponsor was not necessarily aware the target company’s claims were inaccurate, it was nevertheless responsible for failing to undertake sufficient due diligence to either verify or detect errors in those statements. This article analyzes the SEC’s order (Order) and its key takeaways, while also providing commentary from attorneys about the most relevant aspects of the Order for PE sponsors. See our two-part series on the appeals and pitfalls of SPACs: “Vehicle Mechanics and Related Trends
” (Mar. 16, 2021); and “Conflicts of Interest and Obstacles to PE Involvement
” (Mar. 23, 2021).