On Monday, the Wall Street Journal reported that one of the apparently unintended consequences of the Jumpstart our Business Startups (JOBS) Act is that shells and SPACs can designate themselves as emerging growth companies with scaled back disclosure and no auditors to attest to your financial controls. The article suggests that the new law was intended to help young companies attract capital and bring new jobs, and that shells don't really do that.
A well-known architect of the so-called IPO on-ramp that the Act implements was quoted saying that it was probably not intended that the Act's protections apply to shells and such. And the SEC's head of Corporation Finance, Meredith Cross, said that SPACs are not job creators.
Luckily, Ms. Cross was also quoted acknowledging that after completing a reverse merger, a former shell could indeed create jobs. As we have said here, while it may not have been thought about, the law was written in a way that does help companies combining with shells to benefit from its scaled disclosure and other reduced regulation. That's because the language benefits a company doing its first public offering, but does not require the company to go public through that offering in a traditional IPO. Thus, a public offering following a reverse merger can benefit from the law. For newer SPACS going public after December 2011 (the law is not retroactive to companies that went public before that date with an SEC registration of shares), this is an attractive feature indeed.
For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog by David N. Feldman, Esq., Partner of Richardson & Patel LLP.
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