Weinberg & Company

Best Practice Newsletter May 2022

SPAC Targets May Lose Safe Harbor –

The SEC is proposing new reporting requirements that, if approved, would increase liability exposure for operating companies merging into Special Purpose Acquisition Companies (SPACs).

One proposed rule would require SPAC targets to file the same S-4 registration forms that currently are required of the SPAC. In filing the S-4s, the target companies could be held liable for any false or misleading information that the company provided in its merger documents.

Another significant proposed rule would no longer allow SPAC targets to use certain disclaiming safe harbor clauses in forward-looking statements that are typically found in SPAC deals. Eliminating such safe harbor clauses treats SPAC deals like traditional IPOs, which prohibit companies from using projections that may entice investors.

The safe harbor is attractive for private companies merging with a SPAC because it allowed it to provide projections up to five years out. The SEC says these forward-looking projections often are a deciding factor for investors and therefore may be subject to exaggerations.

If private companies can no longer use the safe harbor clause in SPAC transactions, there is increased risk of shareholder lawsuits post-merger if the projections are not realized.

SPAC transactions have dominated the IPO market since 2020. However, increasingly stricter reporting requirements for SPACs have slowed the number of filings this year. In 2021, the total number of SPAC IPOs rose to 613, up significantly from 248 that were completed in 2020, and only 59 that came to market in 2019. This year is expected to be a less robust year for SPACs, with SPACInsider reporting that 67 SPAC IPOs have been filed to year-to-date.

Comment Period Extended for ESG Proposed Rules

The public has been given extra time, until June 17, 2022, to let the SEC know what they think about its proposed “Enhancement and Standardization of Climate-Related Disclosures for Investors.” The rules, if approved, would expand the climate-related disclosures that would be required of public companies.

As Best Practice reported in March, the SEC proposed a long-awaited new set of rules meant to standardize disclosure requirements for U.S. exchange-listed companies in the areas of climate risk. Included for the first time are rules that would require companies to disclose detailed information about the effects their operations currently have or will have on greenhouse gas emissions.

According to the SEC, the proposed rule changes would require a registrant to disclose information about (1) the registrant’s governance of climate-related risks and relevant risk management processes; (2) how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; (3) how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; and (4) the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions. According to the SEC, these proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks.

For a synopsis of the SEC’s proposal, please see:


Public comments may be submitted by using the SEC’s internet comment form:


Uncertainty Leads to ESG “Greenwashing”

As regulatory agencies and investors push for ESG disclosure, three out of five executives say their companies are involved in “greenwashing”—in effect exaggerating that their company’s products or services are more environmentally friendly than they really are.

That’s according to a survey conducted by The Harris Poll and funded by Google Cloud, which found that while many executives are prioritizing sustainability and are “willing to do what it takes to have more sustainable practices…real measures of impact are lacking.”

The survey added that “business leaders expressed a strong sentiment that their companies should be investing in sustainability efforts to impact climate change and help their companies grow but found real challenges in authentically achieving sustainability.”

About two-thirds of company leaders surveyed “agreed that they want to advance sustainability efforts, but don’t know how to actually do it.”

At a time when the SEC is about to formalize its ESG reporting requirements for publicly traded companies, 35% of those surveyed in the US and 29% of those surveyed globally, agreed with the phrase: “My company treats sustainability like a PR stunt.”

The Google Cloud survey was conducted from December 21, 2021, to January 8, 2022. All respondents worked at the C-suite or VP level in the following industries: Financial Services; Retail/CPG; Healthcare and Life Sciences; Manufacturing and Heavy Industry; Technology, Telecommunication, Media, Entertainment, or Gaming; and Supply Chain and Logistics.

 Crypto and Cyber Unit Enforcement Beefed Up

The SEC is acting on its promise to increase enforcement against crypto asset fraud and cyber-related issues affecting investors and has announced a near doubling of staff in its Crypto Assets and Cyber Unit.

Formerly known as the Cyber Unit, the SEC said that this enforcement group will grow from 30 to 50 dedicated people who will be looking for fraud in crypto asset offerings, crypto asset exchanges, crypto asset lending and staking products, decentralized finance (DeFi) platforms, Non-fungible tokens (NFTs) and Stablecoins.

Since the unit’s creation in 2017, it has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms.

Crypto assets also are in focus at the Financial Accounting Standards Board (FASB), which last week unanimously agreed to prioritize the development of new accounting standards for crypto assets, and for setting standards for how certain digital assets should be disclosed. This is a shift from FASB’s October 2020 position when it decided that the issue of crypto assets had not yet met the criteria of being “pervasive” and therefore didn’t need action.

Judge Finds California Women Board Mandate Unconstitutional

A Los Angeles judge has ruled unconstitutional California’s landmark law which stipulated quotas for the number of women who must be represented on corporate boards.

In a May 13 ruling, Superior Court judge Maureen Duffy-Lewis said that the law, which required corporations to include up to three women directors by the end of this year, violated the right to equal treatment.

The law, which went into effect in 2018, was challenged by Judicial Watch, which claimed that it was illegal to use taxpayer funds to enforce a law which violates the equal protection clause of the California constitution by mandating gender-based quotas.

Judge Duffy-Lewis’ ruling follows an April 1 ruling by California Superior Court Judge Terry Green, who ruled unconstitutional a 2020 law that requires publicly traded companies in California to fill Board of Director seats with a quota based on race, ethnicity or sexual preference. In that ruling, Judge Green said that AB 979 violated the California Constitution’s Equal Protection Clause.

The Washington Post has reported that the law mandating quotas for female representation on Boards was “on shaky ground from the get-go, with a legislative analysis saying it would be difficult to defend,” adding “then-Gov. Jerry Brown signed it in despite the potential for it to be overturned because he wanted to send a message during the #MeToo era.”

Constitutional or not, since 2018, board diversity has been on the rise, as evidenced by a just released survey which reports that a record number of women had joined the boards of Fortune 500 companies in 2021, filling 45% of the 449 openings, up from 41% in 2020. With these new Board additions, women now make up 29% of directors on Fortune 500 companies, up from 19% in 2015.

According to the Board Monitor US 2022 report, 41% of the director seats were filled last year by ethnically or racially diverse candidates. While diversity increased, the percentage of board members with current or former CFO experience dropped to 14%, from 21% in 2020 according to the report.

First-time directors also reached a record number, filling 43% of public company board vacancies. The Board Monitor also reported an increase in the number of board seats that went to directors with sustainability and cybersecurity expertise.

In addition to the California laws, board diversity has been a high priority for the SEC. In August 2021, the regulatory agency backed a Nasdaq rule requiring that companies listed on its exchange include at least one woman director, another who is a racial minority or who self identifies as LGBTQ. Nasdaq requires companies to annually report on the demographic composition of its board.