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(Reuters) — Expanding its crackdown on the SPAC sector, the U.S. Securities and Exchange Commission has told top auditors of blank-check acquisition companies to account more strictly for public shares in these shells, according to multiple industry accountants and lawyers familiar with the change.
SEC staff have privately told top auditors of special purpose acquisition companies, or SPACs, that “redeemable” shares issued by these shells must be treated as temporary — known as “mezzanine” — equity, in a break from the long-standing industry practice of treating them as permanent equity, the people said.
The change will cause most SPACs to fall below the minimum equity capital requirement of Nasdaq's Capital Market tier, pushing SPACs looking to list on Nasdaq to its Global Market tier, which has no equity requirement, the people said.
The development marks the second time this year that the SEC has tightened SPAC accounting guidance and the latest salvo in the agency's broader crackdown on the SPAC deals market, a booming business for Wall Street over the past 18 months.
While the long-term implications of the change in listing status for SPACs in the pipeline were unclear, some industry attorneys and auditors said it was another worrying sign that the SEC was looking for ways to upend longstanding practices in the SPAC market.
“It's a change in accounting treatment and a change in the way the SEC views the issue,” said Jeffrey Weiner, CEO of Marcum LLP, which handles over 40% of SPAC audit work, according to data from SPACInsider.
SPACs are listed shell companies used to take private companies public, sidestepping the more traditional and lengthy initial public offering process. In an era of free-flowing money, more than $100 billion in SPAC deals have been inked so far this year.