The safe harbor for forward-looking statements allows SPACs to use projections of the target company’s business and other forward-looking statements when building the support of the SPAC’s shareholders to approve the proposed de-SPAC transaction. SPACs typically price their shares at $10, so the exclusion from the safe harbor is not applicable. The safe harbor for forward-looking statements excludes statements in an offering by a blank check company, which is defined by federal securities law as a development stage company with no specific business plan or purpose or has indicated a plan to engage in M&A with an unidentified company, entity, or person and is issuing a penny stock. The safe harbor does not extend to an enforcement action by the SEC or DOJ. In the case of an entity, the statement was made by or with the approval of an executive officer with the actual knowledge that the statement was false or misleading.The officer made the statement with actual knowledge that it was false or misleading.typically the statements following the cover page of every investor deck-or it is immaterial or The forward-looking statement is identified as such and contains cautionary statements-e.g.The safe harbor for forward-looking statements included in the PSLRA provides that in any private action (the safe harbor does not apply to SEC enforcement actions) under the 19 Acts based on misrepresentation or omission of material act an issuer (the company) and those acting on their behalf (officers) are not liable for any forward-looking statements if: What is the Safe Harbor and How Does it Apply to a SPAC? This potential liability will not only influence the disclosures and communication made by the SPAC, their target, and their respective directors and officers to minimize risk while building support among shareholders for the de-SPAC transaction, but also impact the directors and officers liability insurance purchased to protect the directors, officers, and companies if a shareholder should sue them, alleging the disclosures were wrong or misleading. If passed, companies looking to go public through a SPAC (commonly referred to as a “de-SPAC” or “business combination”) will face increased potential liability in forward-looking statements like the proxy provided to SPAC shareholders for purposes of voting on the de-SPAC or business combination. Prior to the hearing, the committee released draft legislation amending the safe harbor for forward-looking statements provided in Private Securities Litigation Reform Act of 1995 (PSLRA). On May 24th, 2021, the US House Committee on Financial Services held a hearing regarding SPACs, direct listings, public offering, and investor protection associated with these offerings. My Woodruff Sawyer colleague Jon Janes and Varant Yegparian of Schiffer Hicks Johnson break down the issue in this week’s edition of the D&O Notebook. One of the most controversial elements of going public via a de-SPAC transaction is the applicability of the Safe Harbor, something that Congress is considering eliminating.
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