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Regulators step up scrutiny, look to revamp rules

SEC Chair Gary Gensler

Directors and officers liability insurance policyholders and insurers are waiting to see what the U.S. Securities and Exchange Commission will do about special purpose acquisition companies.

Although the agency has taken only two SPAC-related enforcement actions so far, SEC Chair Gary Gensler has been outspoken about his concerns over investor protections.

Accounting guidance the agency issued in April 2021 stating SPAC warrants should be classified as liabilities instead of equity instruments led to a dramatic drop in the number of SPACs. 

James Rizzo, New York-based underwriter for U.S. executive risk for Beazley PLC, said of the agency, “They haven’t intervened in any material way” and that the two enforcement actions taken so far involved “outliers.”

The SEC “has been a little bit of a wild card,” said Kevin LaCroix, executive vice president in Beachwood, Ohio, for RT ProExec, a division of R-T Specialty LLC. 

If it becomes more aggressive in this area, as it has signaled it intends, it could impact underwriters’ willingness to participate in the market, he said.

Leo Daley, Boston-based vice president for Allied World Assurance Company Holdings, Ltd., said the SEC’s position on SPACs will likely evolve, possibly resulting in “more stringent rules and guidelines.” 

Priya Cherian Huskins, San Francisco-based partner and senior vice president at broker Woodruff Sawyer & Co., said she thinks the SEC would like to see SPACs be “more like traditional IPOs,” which unlike SPACs do not have a safe harbor for making forward-looking statements. 

The SEC is worried “that people are just loose with their projections about how successful the company will be,” she said.

A bill now in committee in the House of Representatives, H.R. 5910, would exclude SPACs from having a safe harbor for forward-looking statements.








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