1
SPAC REGULATION—PAST, PRESENT AND FUTURE
E. Ramey Layne* and K. Stancell Haigwood**
Originally published in University of Arkansas at Little Rock Law Review, Winter 2022, Vol. 45,
Issue 2
I. INTRODUCTION
Special purpose acquisition companies (SPACs) are companies formed to raise capital in
an initial public offering (IPO) with the purpose of using the proceeds to acquire an operating
business or assets to be identified after the IPO. Securities offerings and mergers by SPACs have
garnered substantial attention in recent years. The attention is justified, with IPOs completed by
SPACs increasing from 34 in 2017 to 611 in 2021, outpacing the number of IPOs by operating
companies in both 2020 and 2021. Since 2017, the frequency that an operating company went
public via a combination with a SPAC (a “De-SPAC transaction” or a “De-SPAC”) as compared
to an IPO has steadily increased, from roughly one De-SPAC for every ten traditional IPOs in
2017 to roughly one De-SPAC for every two traditional IPOs in 2021—one-third of the operating
companies that went public in the United States in 2021 did so via a De-SPAC.
SPACs are subject to well-established laws and regulations, namely those applicable to all
public companies and their securities offerings and proxy solicitations. While there are regulations
specific to shell companies (which SPACs qualify as), the substantive laws and regulations
currently applicable to SPACs, De-SPAC transactions, and publicly traded operating companies
resulting from combinations with SPACs (“former SPACs”) are not specifically directed at
SPACs. On March 30, 2022, the commissioners of the Securities and Exchange Commission
(SEC) announced proposed new rules and regulations directed at SPACs and other shell companies
(“Proposed SPAC Rules”).
1
SPACs can be listed on national securities exchanges (“listed SPACs”) or traded over-the-
counter (“OTC traded SPACs”). However, in recent years SPACs have been almost exclusively
listed SPACs.
2
OTC traded SPACs went from a majority of SPACs in the 2000s
3
to zero or de
minimis from 2016 through 2021.
4
Given the astronomic increase in the number of SPAC IPOs in
2020 and 2021, OTC traded SPACs have been a small minority (less than ten percent) of total
SPACs since 2001.
5
Because almost all SPACs in recent years have been exchange listed, this
* Partner, Vinson & Elkins LLP, Houston, Texas.
** Senior Associate, Vinson & Elkins LLP, New York, New York.
1
. SEC Proposes Rules to Enhance Disclosure and Investor Protection Relatin g to Special Pu rpose
Acquisition Companies, Shell Companies, and Projections, SEC (Mar. 30, 2022), https://www.sec.gov/news/press-
release/2022-56. See also Special Purpose Acquisition Companies, Shell Companies, and Projections, 17 Fed. Reg.
29458 (May 13, 2022) (to be codified at 17 CFR 210.15-01, 17 CFR 229.1601 through 229.1610, 17 CFR 230.140a,
17 CFR 230.145a, and 17 CFR 270.3a-10 [hereinafter Proposed SPAC Rules].
2
. See, e.g., Usha Rodrigues & Michael Stegmoller, Why SPACs: An Apologia 30 (Univ . of Ga. Sch. of L.,
Legal Rsch. Paper No. 2022-04, 2022) (“[T]he move of SPAC IPOs from a relatively unknown listing on the OTC in
. . . 2010 and 2011 . . . to almost exclusively being listed on the NYSE and Nasdaq in the later years.”).
3
. See Proposed SPAC Rules, supra note 1, at 29509.
4
. Id. (reporting zero OTC traded SPACs from 2016 to 2021); cf Rodrigues & Steg-moller, supra note 2, at
31 (suggesting there were two OTC traded SPACs in 2018 but none in any other years from 2013 to 2019).
5
. Rodrigues & Stegmoller, supra note 2, at 33 tbl. 1.
2
article focuses on SPACs listed on a national securities exchange. In the Proposed SPAC Rules,
the SEC would define “special purpose acquisition company” in a manner that included OTC
traded SPACs.
6
Where listed SPACs or OTC traded SPACs have or may justify a different
regulatory treatment, we specify the type of SPAC.
SPACs fall within the definition of “shell company,”
7
but not “blank check company”
8
or
an issuer of “penny stock.”
9
The commissioners and staff of the SEC have contributed to confusion
over the different types of shell companies by describing SPACs as “blank check companies.”
10
Laws and regulations that target shell companies were adopted over the last thirty years, starting
with the Securities Enforcement Remedies and Penny Stock Reform Act in 1990 (“Penny Stock
Reform Act”).
11
These laws and regulations include those applicable to blank check companies,
penny stock issuers, and shell companies other than “business combination related shell
companies”
12
—this article will refer to these laws and regulations collectively as “Shell Company
Regs.”
13
Prior to the Proposed SPAC Rules, statements by regulators presaged regulations
specifically focused on today’s SPACs. As described in “SEC and Legislative Statements” below,
recent regulatory action outside of the rule-making context and congressional proposals and
inquiries provide in-sight into regulators’ and legislators’ views of SPACs and De-SPAC
transactions as well as potential new laws and regulations specifically directed at SPACs and De-
6
. Prosed SPAC Rules, supra note 1, at 29509.
7
. 17 C.F.R. § 230.405 (2021). The term “sh ell company” is defined in Rule 405 under the Securities Act of
1933 (“Securities Act”) as a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB,
that has: (1) no or nominal operations; and (2) either: (i) no or nominal assets; (ii) assets consisting solely of cash and
cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nomin al other assets. Id.
8
. Id. § 230.419 The term “blank check company” is defined in Rule 419 und er the Securities Act as a
company that: (i) is a development stage company that has no specific business plan or purpose, or has indicated that
its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity
or person; and (ii) is issuing “penny stock,” as defined in Rule 3a51-1 under the Securities Exchange Act of 1934
(“Exchange Act”). Id.
9
. Id. § 240.3a51-1. The term “penny stock” is d efined in Rule 3a51-1 under th e Exchange Act and is
structured as an exclusionary definition —penny stock is any equity security other than securities that fit in a n umber
of exclusions. Id. Notab ly, this includes stock listed on a national securities exchange under certain listing standards
(which does not apply to most, if any, SPACs), and issuers that have at least $5 million o f net tangible assets (which
is the exception that SPACs generally rely upon).
10
. See, e.g., Off. of Inv. Educ. and Advoc., What You Need to Know About SPACs” – Updated Investor
Bulletin, SEC (May 25, 2021), https://www.sec.gov/oiea/investor-alerts-and-bulletins/what-you-need-know-about-
spacs-investor-bulletin (“SPAC stands for special purpose acquisition company—what are also commonly referred to
as blank check companies”); Blank Check Company, INVESTOR, https://www.investor.gov/introduction-investing/
investing-basics/glossary/blank-check-company (last visited Jul. 31, 2022) (“[a] type of blank check company is a
‘special purpose acquisition company,’ or SPAC for short,”); Gary Gensler, Chair, SEC, Remarks Before the Healthy
Markets Association Conference (Dec. 9, 2021), https://www.sec.gov/news/speech/gensler -healthy-markets-
association-conference-120921 (“blank-check companies raise cash from the public through initial public offerings
(IPOs). I call this step the ‘SPAC blank-check IPO.’”).
11
. Pub. L. No. 101-429, 104 Stat. 951 (codified as amended at 15 U.S.C. §§ 78a, 78o).
12
. 17 C.F.R. § 230.405 (2021). The term “business combination related shell company” is defined in Rule
405 under the Securities Act as a shell company that is: (1) formed by an entity that is not a shell company solely for
the purpose of changing the corporate domicile of that entity solely within the United States; or (2) formed by an entity
that is not a shell company solely for the purpose of completing a business combination transaction among one or
more entities other than the shell company, none of which is a shell company. Id.
13
. See infra Annex A.
