Weinberg & Company

Simply Stated Newsletter – November 2020

By November 19, 2020 No Comments


Special Purpose Acquisition Companies (SPACs) are having a record year, with 182 companies seeking the lucrative equity markets, while avoiding the costs associated with a traditional IPO.

Industry tracker SPACInsider.com reports that as of November 18, 2020, 182 SPAC transactions have raised $65.7 billion, with transactions averaging $361 million. This is triple the number of 2019 transactions, which saw 59 SPACs raising $13 billion, with transactions averaging $230 million.

The SPAC as an equity raising tool has been around for more than 20 years, and is typically formed by founders with expertise in a particular industry. Without an existing business operation or stated target for acquisition, monies raised are held in a trust fund, with management required to find an acquisition target within 18-24 months. If no target or targets are found, funds must be returned to investors.

Once considered second class to the traditional IPO, SPACs, also known as blank check companies, have grown in status, as bulge bracket firms joined the ranks of investment banks raising significant amounts for their clients. In 2020, bulge bracket firms held the top 10 rankings for the amount of money raised through SPACs.

SPACInsider.com reports that the number of SPAC transactions has increased significantly since 2009, which logged only 1 transaction and a raise of $36 million. Since then, the industry has logged 408 SPAC deals valued at over $112.8 billion.

For details on SPAC activity and league tables, please see:  SpacInsider


When the Financial Accounting Standards Board (FASB) issued a new standard for reporting credit impairment several years ago, almost all the focus was on how the rule would impact banks and financial institutions.

The new Current Expected Credit Loss (CECL) Standard also affects GAAP-compliant companies that hold financial assets at amortized cost, including loans, reinsurance and trade receivables, Held-to-Maturity (HTM) debt securities, net investment in leases, and certain off-balance-sheet credit exposures, such as loan commitments.

Public companies with more than $200 million in outstanding loans, receivables, or revenue have been required to file under the new standard since their first reporting period after December 15, 2019. However, the difficulty in implementation, compounded by economic strains and uncertainties of the pandemic, caused FASB to extend the deadline for smaller entities. That extended deadline, however, is drawing nearer, with the remainder of public companies now having until the first reporting period following December 16, 2022 to comply.

CECL replaces the current GAAP impairment model which is based on incurred losses, and where investments, or extended credit, are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms.

Instead, under CECL, entities will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss from inception and continuing over the life of a loan or extended credit.

Under CECL expected losses must be estimated and recorded upfront and then reviewed and measured again at each reporting period. Companies will have to make a judgment call on choosing which model and methodology to use, and then make more judgment calls in selecting which data is relevant to arrive at a reasonable and supportable forecast.

For more information, please see: FASB


Jay Clayton, whose administration prioritized deregulation, enabling more capital formation for smaller companies, IPOs and the whistleblower program, will be leaving his post as Chair of the SEC at the end of this year. His term was to end June 2021.

Clayton began his tenure in May 2017, and served more than three and a half years, making him one of the longest serving Chairs, according to the SEC.

Considered a moderate, Clayton was focused on modernizing regulations which would enable smaller companies to raise capital on both the public and private markets, while at the same time increasing transparency, and adding protections for the retail investor.

Since Clayton took office, the SEC brought over 2,750 enforcement actions.

Reporting on Clayton’s departure, the Wall Street Journal noted that his successor “likely will prod public companies to include more disclosures of risks related to climate issues. The commission is also likely to set clearer rules for mutual funds that emphasize companies’ environmental, social and governance-related goals.”

The newspaper said possible successors include Gary Gensler, who ran the Commodity Futures Trading Commission under President Obama, and who, according to the WSJ “is managing Mr. Biden’s process for drafting an agenda for the Wall Street regulatory agencies.”

Other possible candidates, according to the WSJ, include former Democratic SEC commissioners Kara Stein or Robert Jackson Jr., and former U.S. Attorney Preet Bharara of the Southern District of New York.

For more information, please see: sec.gov/news/press-release


With its entire workforce working from home since March 2020, the SEC still managed to bring 715 enforcement actions this year, including the delisting of 130 public companies, typically microcap.

The SEC also reported taking in record-breaking monetary fines totaling $4.68 billion in its fiscal year 2020, which ended in September. That compares to last year’s monetary fines which amounted to $4.349 billion, representing 862 enforcement actions.

According to the SEC’s Annual Report published November 2, the actions included:

* 405 “standalone” actions brought in federal court or as administrative proceedings

* 180 “follow-on” proceedings seeking bars based on the outcome of SEC actions or actions by criminal authorities or other regulators; and

* 130 proceedings to deregister public companies-typically microcap-that were delinquent in their SEC filings.

The SEC noted that 32 percent of the 405 “standalone” cases concerned securities offerings, an increase over 2019. Other cases involved investment advisory and investment company issues (21%), down from 2019; and issuer reporting/accounting and auditing matters (15%), down from 2019. The SEC continued to bring actions relating to broker-dealers (10%), up from 2019; insider trading (8%), up from 2019; and market manipulation (5%), down from 2019; as well as other areas such as Public Finance (3%) and Foreign Corrupt Practices Act (2%).

In its efforts to hold individuals accountable, the SEC said that 72 percent of this year’s standalone enforcement actions were against individuals. “Those charged include individuals at the top of the corporate hierarchy, including numerous CEOs and CFOs, as well as accountants, auditors, and other gatekeepers”, according to the SEC report.

Of the $4.68 billion that companies and individuals were forced to pay, $3.589 billion represented disgorgement of ill-gotten gains, while penalties imposed totaled $1.091 billion. The median amount of money companies were ordered to pay was over $530,000. In 2019, companies paid $3.248 billion in disgorgement and $1.01 billion in penalties.

The SEC noted that 492 of the total 715 cases were handled after the SEC instituted mandatory stay at home orders, and that the average investigation time dropped to 21.6 months, the lowest in five years. In one case, the commission filed its action within five weeks of the alleged misconduct.

For a deep dive into the report, please see: sec.gov/files/enforcement


The SEC reported that it received 16,000 tips, complaints and referrals from mid-March, to the end of September, representing a 71 percent increase over the same period last year.

In its annual report, Stephanie Avakian, the SEC’s Director, Division of Enforcement, said that in March the SEC formed a Coronavirus Steering Committee to “oversee this effort by coordinating investigations relating to a wide variety of potential misconduct in the areas of microcap, insider trading, and financial fraud and issuer disclosure.”

“In March and April alone, the Commission suspended trading in the securities of two dozen issuers where there were questions regarding the accuracy and adequacy of information related to COVID-19 that those issuers injected into the marketplace, including claims about potential COVID-19 treatments, the manufacture and sale of personal protection equipment, and disaster-response capabilities”, she added.

“The Division opened more than 150 COVID-related inquiries and investigations and recommended several COVID-related fraud actions to the Commission. We think this triage and investigative work, and the resulting Commission trading suspensions and fraud actions, meaningfully changed the landscape for investors during a period of significant market uncertainty,” said Avakian.

Avakian noted that the SEC’s Whistleblower Program was representative of the increased enforcement activity. When the program ended its 2020 fiscal year in September, the Division of Enforcement reported a record year for the program, which issued approximately $175 million in total awards to 39 individuals. “This represents a 200% increase in the number of individuals awarded in a single year over the next-highest year,” noted Avakian.

For a deep dive into the report, please see: sec.gov/files/enforcement


Retailers can’t count on Santa        


The annual holiday spending survey conducted by pollster Gallup shows that Americans will be spending an average of $805 on Christmas gifts this year, well below last year’s estimate of $942.

The survey, conducted in October, is bad news for retailers, already battered by COVID-restricted shutdowns. Gallup also reports that more than twice as many people polled (28%) say they are spending less this year, versus those who will be spending more (12%). This is the lowest October holiday spending projection that Gallup has measured since 2016.

When comparing retail sales for prior years, Gallup notes that “holiday sales typically increase year-over-year, rising 3.3% on average since 2000, with sales up more than 5% in strong years and around 2% in weak years, according to figures compiled by the National Retail Federation. Since 2000, holiday sales have only been worse in 2008 and 2009, the result of the global financial crisis.

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