During the annual Practising Law Institute's SEC Speaks, Commissioner Lee discussed the state of public markets and public offerings.  The Commissioner addressed the shift toward continued reliance on the private markets rather than the public markets for capital raising, as well as the decline in the number of IPOs.  While the Commissioner noted that many theories have been advanced to explain the decline in the number of IPOs and the decline in the number of smaller IPOs, she focused on the deregulation of private markets, but did not offer additional insights to support this view.

The Commissioner commented favorably on alternatives to the traditional IPO, including direct listings and mergers with SPACs.  With respect to direct listings, the Commissioner noted that the currently proposed changes that would allow an issuer to raise capital in conjunction with a direct listing bear close scrutiny.  The Commissioner highlighted two important issues: the extent to which financial advisers assisting issuers with direct listings undertake any gatekeeper functions like diligence and the "tracing" issues that have now been raised in the context of litigation.  The Commissioner noted that "the breadth of the statutory definition of "underwriter" may, depending on the facts and circumstances, be sufficient to encompass the activities of a financial advisor in a direct listing."   She also noted that while one district court decision has held that the Securities Act Section 11 tracing requirement does not apply to a direct listing, the issue remains subject to appeal, and the SEC should consider whether investors are sufficiently protected under Section 11 when it comes to direct listings.

The Commissioner also addressed the issue du jour, SPACs.  She noted that the SEC should focus on SPAC risk disclosures and disclosures related to sponsor compensation.  These comments are similar to those made by Chair Clayton during a recent CNBC interview.  Commissioner Lee went further though, suggesting that the SEC should consider whether there are ways to align the interests of sponsors and investors to ensure that sponsors are incentivized by the quality of any potential target.  See the full text of the prepared remarks here.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.