Hey SEC! Looking for a way to make hay with a SPAC peddling stablecoins?
You couldn't pick two worse guys to take Circle — a firm that has to protect customer assets — public
I’ve got a twofer tip for the SEC’s Gary Gensler and his Director of Enforcement Gubir Grewal, one that if followed-up on may throttle a SPAC deal in the stablecoin space.
SEC Chairman Gary Gensler spoke at the Healthy Markets Association Conference on Dec. 9 and the focus of his remarks was SPACs, or special purpose acquisition companies. Gensler explained how the SPAC process works:
[SPACs are] blank-check companies [that] raise cash from the public through initial public offerings (IPOs). I call this step the “SPAC blank-check IPO.” The number of SPAC blank-check IPOs has ballooned by nearly 10 times between 2019 and 2021. Further, those SPAC blank-check IPOs now account for more than three-fifths of all U.S. IPOs.
Typically, the blank-check company has up to two years to search for and merge with a target company. Once SPAC sponsors find a target company, they often raise additional capital through transactions known as private investments in public equity, or “PIPEs.”
These deals give new investors — mostly large institutions — an opportunity to put money into the SPAC target IPO. Then, through the merger, the target company goes public. If a deal is approved, the initial shareholders are provided a redemption right to cash out — redeeming at the blank-check IPO price.
Some call that second step, the merger process, the “de-SPAC.” I like to call it the “SPAC target IPO.”
Gensler signaled that the SEC would be looking more closely at these transactions:
Are SPAC investors — both at the time of the initial SPAC blank-check IPO and during the SPAC target IPO — benefiting from the protections they would get in traditional IPOs, with respect to disclosure, marketing practices, and gatekeepers?
In other words, are like cases being treated alike?
Currently, I believe the investing public may not be getting like protections between traditional IPOs and SPACs.
Further, are we mitigating the information asymmetries, fraud, and conflicts as best we can?
The Director of the SEC Division of Enforcement, Gurbir Grewal, signaled the same sentiment the day before, telling an audience of accountants, auditors, and company CFOs at the AICPA SEC/PCAOB Conference:
Emerging threats, whether it's in the cyberspace and the crypto space, when it comes to ESG, when it comes to SPACs, we have to stay ahead and make sure that we are the cop on the beat that we need to be. That's what robust enforcement means to me. And I think we are well poised to do that.
The House Financial Services Committee held a hearing about stablecoins on the same day Grewal spoke. The co-founder, chairman and CEO of Circle, Jeremey Allaire, testified as well as Alesia Jean Haas, the CFO of Coinbase, Circle’s partner in its stable coin USDC.
Today the Senate Banking Committee is holding another hearing entitled “Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?” The witnesses include Alexis Goldstein, Director of Financial Policy, Open Markets Institute and Circle, again, represented by Dante Disparte, its Chief Strategy Officer and Head of Global Policy.
While reviewing the Circle go-public transaction in preparation for the House hearing, it came to my attention that former Barclays CEO Bob Diamond and former MF Global board member David Schamis, now members of the management committee of Atlas Merchant Capital, are leading the de-SPAC transaction to bring Circle public.
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