Skip to content

John C. Coates, SPAC Law and Myths, 78 Bus. Law. 371 (2023).


Abstract: Special purpose acquisition companies (SPACs) were the financial-legal hit of 2021, before they weren't. Breaking records and displacing, to an extent, conventional initial public offerings (C-IPOs), even as C-IPOs also boomed, SPACs spiked, in part, because-in addition to myths about their financial attributes, which others have de-bunked several myths about SPAC law circulated widely and persistently. SPAC promoters claimed that (1) securities regulations ban projections from being used in C-IPOs, (2) liability related to projections was lower and more certain in SPACs than it was (and is), (3) the Securities and Exchange Commission (SEC) registration process delays C-IPOs more than SPACs, (4) the SEC changed SPAC accounting rules in early 2021, (5) this "change" was the primary reason the SPAC wave slowed and peaked, and (6) the Investment Company Act clearly does not apply to SPACs. Consistent with these being myths, de-SPACs from 2021 are experiencing significant levels of litigation-even higher than in C-IPOs. These myths were aimed primarily not at unsophisticated retail investors, but business journalists, sophisticated SPAC sponsors, and owner-managers of SPAC targets. They illustrate a broader and under-appreciated fact that complex financial-legal innovation permits promoters to exploit the "credence good" character of professional advice, perpetuate "deep fraud," and distort markets and asset prices more and longer than conventional theory assumes. To moderate deep fraud's market distortions, proposed SEC reforms should be finalized to improve SPAC disclosure, enhance investor understanding of their risks, and reduce regulatory uncertainties that contribute to legal myths about SPACs, but the inherent complexity of the product may require an ongoing role for regulators to speak clearly about SPAC law and its uncertainties.