Under current practice, investors face informational disadvantages when evaluating whether to invest in companies that raise capital through a special purpose acquisition company, or “SPAC,” structure instead of a traditional IPO. The reforms the Commission is advancing today protect investors by addressing this disparity.

Improved disclosures of sponsor compensation, conflicts of interest, share value dilution, and other material information will be more useful for investors when evaluating the merits of a SPAC IPO and de-SPAC transactions.

Aligning liability protections and marketing practices with those of traditional IPOs will also better protect retail investors who choose to invest in such vehicles.

In recent years, many private companies going public have opted for the SPAC route instead of a traditional IPO. Unlike IPOs, SPACs’ structural complexity, along with their sponsors’ financial incentives, raise unique investor protection concerns.

In today’s uneven playing field, retail investors are not covered by the same legal protections in a de-SPAC transaction as in a traditional IPO. Because the end result is the same in either instance – investment in a public company – it’s reasonable for investors to expect the same level of transparency and substantially similar legal protections.

To state the obvious, investors don’t purchase shares in a SPAC simply to go long on a blank shell company. SPACs are marketed to investors as a way of taking an operating company public, with the potential upside that entails. It would be foolhardy for the Commission to ignore this basic reality.

Unlike sponsors and private investment in public equity, or “PIPE,” investors, both of whom commonly receive SPAC shares at a discount, retail investors are more adversely affected by the dilution effects of SPAC structures.

In particular, sponsors may have a financial incentive to complete a de-SPAC transaction at just about any price, even when it might not be a good deal for retail investors.

Quantifying the level of dilution from SPAC structures can also be difficult, because of factors such as sponsor compensation and investment terms, share redemptions, warrants, PIPE financing, and underwriting fees. Retail investors who lack access to the same information as sponsors and PIPE investors end up especially disadvantaged. The informational asymmetry from a SPACs process that prevents investors from understanding how diluted their shares may be results in inefficient market prices. This is not, by any reasonable standard, a good thing for our capital markets.

To address this, today’s reforms improve disclosures about how SPAC shares may be diluted. This will provide investors with better information to evaluate the merits of de-SPAC transactions.

Another key protection in the final rule is aligning SPACs’ treatment of financial projections with traditional IPOs.

Financial projections for target companies are very common in de-SPAC transactions. However, academic studies and comments from investor advocates find that such projections can be overly optimistic, with retail investors experiencing substantial losses following a de-SPAC transaction.

Today’s reforms address this problem by ensuring that the safe harbor for forward-looking projections under the Private Securities Litigation Reform Act is equally unavailable for traditional IPOs and for de-SPAC transactions. This levels the playing field for retail investors because SPACs will be more likely to exercise the appropriate care to avoid unreasonable forward-looking projections.

In addition, by requiring that a target company sign the registration statement filed in connection with a de-SPAC transaction, the final rule ensures that investors more consistently receive the full liability protections of the Securities Act. This means that a target company will be subject to Section 11 liability for material omissions and misstatements, which incentivizes such companies to provide accurate disclosures in de-SPAC registration statements.

Lastly, the Commission is not adopting the proposed safe harbor under the Investment Company Act. As a result, SPAC issuers, like any other issuer, will use existing, traditional tests to determine whether they qualify as investment companies. To the extent they do, SPAC investors, like any other issuer’s investors, will benefit from the protections in that Act.

While market innovations can promote capital formation and expand investment opportunities, our statutory mission requires us to protect investors in the process.

In that spirit, today’s reforms increase transparency and market efficiency and empower investors to make more informed investment and voting decisions. I am pleased to support them.