SPAC Investigations: SEC Scrutiny of Special Purpose Acquisition Companies.

Last Updated on: 4th August 2026, 01:33 am

The SEC scrutinizes every step of a SPAC transaction, from the SPAC IPO through to the completion of the de-SPAC. Key areas of focus include disclosures, marketing practices, conflicts, and the role of gatekeepers. However, an SEC subpoena does not prove any violation of federal securities laws.

What are the Risks and Regulatory Considerations Inherent to SPACs?

There are several reasons why the SEC views SPAC transactions as uniquely risky. First, by design, a SPAC is publicly traded prior to completing its acquisition. A de-SPAC transaction involves combining a listed SPAC with an operating business. Second, the nature of the relationship between sponsors and shareholders raises the potential for conflicts of interest. Third, both the SPAC’s sponsors and the target company may be able to use the transaction to bypass the rigorous requirements of an IPO.

What Were the SEC’s Key Areas of Focus in the December 2021 Proposal Request?

In December 2021, Chair Gary Gensler requested a set of SPAC-specific rule proposals from the SEC’s staff. The focus area of the proposed regulations include:

• Disclosures;
• Marketing practices;
• Conflicts of interests;
• Gatekeeper responsibilities; and
• Compliance and enforcement.

What New SPAC Rules Has the SEC Recently Adopted?

The SEC adopted final SPAC rules on January 24, 2024. These rules will apply to:

• SPAC IPOs;
• De-SPAC transactions; and
• Other applicable securities offerings.

What Should Investors Do When Facing SEC Scrutiny for a SPAC Transaction?

Investors facing SEC scrutiny should be prepared to deal with a wide range of issues. Key areas of focus may include:

• Accurate and timely disclosures;
• Appropriate marketing practices;
• Conflict controls;
• Sufficient due diligence; and
• Disciplined responses to investigations.

What do the SEC’s current SPAC rules require?

What are the Risks of SPAC Transactions Subject to Registration?

As a result of the SEC’s 2024 SPAC rules, de-SPAC transactions subject to registration under the Securities Act face the following risks:

• Disclosures not only must be accurate, but they must be thorough as well. This includes any required disclosures, and any other disclosures that are necessary to prevent the registration statement from being misleading.
• Registration statements remain subject to the Securities Act’s strict disclosure and liability provisions. This includes Section 11 liability, which can apply to issuers, signers, directors, underwriters, and consenting experts.
• Any statements made to investors should be reviewed carefully. Misrepresentations and omissions that may render a statement misleading can lead to investor protection and anti-fraud enforcement as well.

When Did the SEC’s 2024 SPAC Rules Come into Effect?

For the most part, the SEC’s 2024 SPAC rules became effective on July 1, 2024. For SPACs in the SEC’s ongoing rulemaking process, registration statements and other applicable filings must comply with the rules’ structured-data requirements beginning June 30, 2025.

What New Disclosure and Enforcement Obligations do SPACs Face?

Among other provisions, the SEC’s 2024 SPAC rules include the following provisions addressing disclosure and enforcement obligations for SPACs:

• Co-Registrant Requirement for De-SPAC Registration Statements (amendments to Forms S-4, F-4, S-1 and F-1). Under these form amendments, a de-SPAC transaction that involves a registration statement is subject to the additional requirement of including the target company as a co-registrant, while new Regulation S-X Rule 15-01 separately sets the financial statement requirements for the target company. This applies to securities offerings conducted through a de-SPAC combination that is subject to registration under the Securities Act.
• Investment Combinations Subject to Registration (Securities Act Rule 145a). Under Rule 145a, a business combination between a reporting shell company, such as a SPAC, and a non-shell operating company is deemed to involve a sale of securities to the shell company’s shareholders, regardless of how the transaction is structured and whether or not a registration statement is filed.
• Projections in de-SPAC Disclosure (Regulation S-K Item 1609). Item 1609 imposes the following disclosure obligations for projections in de-SPAC transactions. Projections must include information concerning:

- The purpose of the projections;

- Who prepared the projections;

- The material bases upon which the projections are based; and

- Any material assumptions in the projections.

• Determination of SPAC Status for the Private Securities Litigation Reform Act (PSLRA) Safe Harbor (Securities Act Rule 405 and Exchange Act Rule 12b-2). The amended definition of “blank check company” in these rules restricts the availability of the PSLRA’s safe harbor for forward-looking statements. For purposes of the PSLRA safe harbor, that amended definition deems SPACs to be blank-check companies.
• Liability Rules and Enforceability (Securities Act Sections 11 and 12 and Exchange Act Section 14(a)). The SEC’s 2024 SPAC rules do not alter any of the de-SPAC registration statement’s disclosure or liability obligations. This means that all applicable liability rules continue to apply, and all remaining issuers will remain subject to enforcement proceedings for violations.

Where does SEC risk arise during a SPAC transaction?

What Were the Key Areas of Focus of the SEC’s December 22, 2020 Guidance?

On December 22, 2020, the SEC issued guidance addressing “SPACs,” and emphasizing issues including:

• Sponsor conflicts and incentives,
• De-SPAC disclosures,
• Target due diligence, and
• The role of SPAC gatekeepers.

Who Serves as a SPAC Gatekeeper?

In a SPAC transaction, gatekeepers include:

• SPAC directors and officers,
• SPAC sponsors and advisors,
• SPAC accountants and consultants,
• Target company directors and officers,
• Target company sponsors and advisors, and
• Target company accountants and consultants.

Does Trading on Information Regarding a Proposed SPAC Merger and Other SPAC Transactions Constitute Insider Trading?

In the lead-up to the public announcement of a proposed SPAC merger, the information about the merger may constitute material nonpublic information. Therefore, trading on such information or engaging in a SPAC PIPE fundraising offering can expose SPACs, targets, and other parties to insider-trading risk. At the same time, restricting investors’ access to material nonpublic merger information may expose PIPE transactions to investor-fraud enforcement risk, as well. This includes risk related to potential material misrepresentations or omissions concerning the merger.

To mitigate these risks, SPACs and other parties should engage with their legal counsel to devise and implement appropriate information-sharing and disclosure protocols.

What Other Risks Should SPACs and Other Parties Consider as well as Address when Conducting a SPAC Transaction?

In addition to risks related to insider trading and investor fraud, other risks to consider when engaging in a SPAC transaction include:

• Due Diligence: Thorough due diligence during a de-SPAC transaction can serve to:

- Help identify inaccuracies in the target’s disclosures before a stockholder vote,

- Help SPACs, their sponsors, and other parties evaluate potential liabilities, and

- Help prevent fraud, insider trading, and other risks.

• Investor Disclosures: When making projections, SPACs, targets, and their sponsors and other parties must ensure that their projections are:

- Accurate,

- Based on reasonable assumptions and material grounds, and

- Prepared and developed in a manner consistent with the Securities Act’s requirements.

• Conflict Controls: SPACs and targets should ensure that they have all appropriate conflict controls in place. This includes both before the acquisition and after the merger, and particularly in cases where the combination may involve SPAC sponsors or other related parties.

Todd Spodek and the attorneys at Spodek Law Group handle federal cases of this kind from New York, Brooklyn, Queens and Los Angeles.

What happens during an SEC investigation of a SPAC?

Can an SEC Investigation Lead to Charges in All Cases?

No, an SEC investigation may lead to enforcement charges if it turns up enough evidence. However, it can also end without any enforcement charges. As a March 2026 report by the Wall Street Journal notes, the SEC has closed its four-year probe in Faraday Future in the absence of charging the company and its former CEO.

What is a Formal Order of Investigation?

A formal order of investigation is the authorization for SEC staff to start pursuing an SEC investigation under the Commission’s oversight. The order authorizes designated SEC staff members to issue subpoenas and demand documents or oral testimony from anyone whom the staff deems necessary.

What is a Wells Notice?

A Wells notice is a letter sent by the SEC staff during an SEC investigation that communicates a preliminary recommendation to pursue enforcement charges against the recipient. This includes any civil enforcement action the SEC may seek to file or any administrative proceeding it may seek to institute. However, a Wells notice:

• Is not a formal civil enforcement charge filed in federal district court,
• Is not an adjudicated finding of wrongdoing,
• Is not a final recommendation of the SEC staff to the SEC Commission, and
• Does not necessarily mean that the SEC is going to file enforcement charges.

Can a Recipient of a Wells Notice Respond with Written Arguments?

Yes, recipients of Wells notices are entitled to respond. Once, a recipient of a Wells notice receives a copy of the SEC staff’s preliminary recommendation to pursue enforcement charges (which is part of a Wells notice), the recipient may respond with any written arguments that may persuade the SEC staff not to pursue enforcement action. The SEC’s staff’s final recommendation must take the recipient’s arguments into account.

How and Where Does the SEC File Charges in Civil Enforcement Cases?

The SEC files charges in civil enforcement cases through a civil action filed in federal district court or by initiating administrative proceedings in front of the SEC’s Office of Administrative Law Judges (OALJ). An administrative proceeding is a case that the SEC decides to litigate before an ALJ, and a civil enforcement action is a case that the SEC decides to litigate before a federal district judge.

How is an Enforcement Settlement Approved?

If a civil enforcement action or administrative proceeding is the result of a settlement between the parties, the settlement must receive the Commission’s authorization or approval as required by applicable SEC delegations of authority. This is because the SEC Commissioners are responsible for issuing the SEC’s decisions in administrative proceedings. The SEC’s Commissioners must likewise vote to authorize settlements of civil enforcement actions filed in federal district courts, and the settlement is then subject to entry by the court.

How Should SPAC Participants Respond to SEC Requests?

What are the SEC’s Standards for Granting Cooperation Credit?

The SEC’s Seaboard Report, issued on October 23, 2001, outlines the factors that can be considered when determining whether to grant cooperation credit. These factors are:

• Self-policing;
• Self-reporting;
• Remediation; and
• Cooperation.

Should Organizations Suspend Automatic Data Deletion?

Organizations should suspend automatic data deletion when an SEC investigation becomes “reasonably foreseeable.” This includes situations in which the organization has received a subpoena, a document preservation request, an informal inquiry from the SEC, or notification of an SEC enforcement action.

What Types of Electronic Data and Information Should Be Preserved During an SEC Investigation?

Preservation of evidence should include:

• Email, text messages, and ephemeral messages,
• Relevant metadata, including “hidden” information (e.g., GPS location data),
• Company-issued smartphones, personal smartphones, and other personal devices,
• Computer-related devices,
• Other forms of paper and electronic data and information, and
• Metadata from digital documents.

How Should a Recipient of a Subpoena Respond?

A recipient of a subpoena from the SEC can negotiate the scope of its obligations, but it must ultimately comply unless the demand is modified or the subpoena is quashed. With that said, the SEC tends to take a hard line on its enforcement authority. Thus, recipients should engage experienced outside counsel to protect their interests in any appropriate way while working toward compliance.

Is a Privilege Waiver Required to Receive Cooperation Credit?

The SEC’s Enforcement Manual states that receiving cooperation credit does not require a privilege waiver, including the attorney-client privilege and the work product doctrine. To qualify for cooperation credit, however, an individual or organization must still “actively cooperate” in the investigation.

If an individual or organization does not qualify for cooperation credit, SEC counsel may still try to force it to waive its privilege (i.e., to preserve the attorney-client privilege by proving it is not being used for “unlawful purpose”).

Does a Delaware Corporation Have the Ability to Advance a Target’s Investigation Expenses?

Yes. Under 8 Del. C. § 145(e), Delaware corporations may advance expenses, including legal fees, for directors, officers, employees, and other agents in administrative or other proceedings where indemnification is authorized by a court, or which is not prohibited by law.

Does a Director and Officer Insurance Policy Cover SEC Investigation Costs?

This is an open question in many cases. Coverage under a director and officer insurance policy depends on the policy’s definition of an “insured,” the policy’s notice requirements, and various other issues including:

• Exclusions;
• The type of insurance coverage; and
• The insured’s status (or lack thereof).

Can a SPAC Investigation Become Criminal or Cross-Border?

Can an SEC Investigation Become a Parallel Criminal and Civil Proceeding?

Yes, an SEC investigation can, and often does, lead to parallel criminal and civil proceedings. A common example of this is when a parallel investigation is conducted by the U.S. Department of Justice (DOJ) and shareholders file civil lawsuits as well.

The SEC also announced a cross-border fraud task force in September 2025. The task force prioritizes foreign issuers, foreign-regulated gatekeepers, and other-related parties in cross-border frauds. As an example, many U.S.-listed companies have been targeted by U.S. authorities for violations of U.S. federal securities laws.

Can the SEC Institute Criminal Proceedings in All Cases?

No, only the DOJ can institute criminal proceedings. The SEC’s enforcement power is limited to civil injunctions, civil penalties, disgorgement, and administrative industry bars. As a result, civil enforcement cases can be resolved in federal district court or administratively.

Does a Post-De-SPAC Company Need to Reassess Its Foreign-Private-Issuer Status?

Yes, this is part of the new requirements under the SEC’s 2024 rules for de-SPAC transactions. To help investors decide whether to withdraw, these rules require the disclosure of material information concerning de-SPAC transactions, including the target’s foreign-private-issuer status.

If a de-SPAC transaction results in the target company being combined with the SPAC, the new company’s foreign-private-issuer status may change. This results in the need to reassess the combined company’s foreign-private-issuer status after the closing of the de-SPAC transaction.

What are the Challenges When Conducting Evidence Collection Abroad?

Evidence collection abroad involves many challenges. One example is how to properly preserve evidence. This is important because the SEC (as well as other federal authorities) may demand a comprehensive preservation of all information, and evidence preservation can have implications under various laws, including:

• Privacy, confidentiality, and blocking laws,
• Data-localization laws, and
• Cross-border evidentiary and information-sharing protocols.

Failure to correctly preserve and disclose information can be considered a red flag by federal prosecutors and SEC prosecutors, which can potentially expose issuers and other parties to additional exposure.

What are the Criminal Penalties for Willfully Violating the Securities Act?

The criminal penalties for willfully violating the Securities Act include:

• Up to 25 years of imprisonment,
• A fine of up to $5,000,000 for individuals or $25,000,000 for corporations or other entities, or
• Both.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 212-300-5196.