Citigroup Temporarily Halts SPACs Awaiting Legal Clarity

Citigroup is temporarily pulling the plug on public offerings with special purpose acquisition companies (SPACs) until it gets legal clarity about proposed legislation and what that could mean as far as associated risks, Bloomberg reported on Tuesday (April 5), citing sources with insider information.

The Securities and Exchange Commission (SEC) is focusing on increased SPAC oversight following concerns raised by lawmakers and investor advocates that SPAC listings are allowed to routinely sidestep mandates imposed on traditional initial public offerings (IPOs). As a result, investors are unknowingly subjected to increased risks. 

The guidelines proposed by the SEC would make it a requirement that SPACs disclose details regarding any possible conflicts of interest. Proposed new rules would also make it easier for investors to file lawsuits against SPACs that issue inaccurate forecasts.

See also: SEC: Investors Can Sue Over Inaccurate SPAC Forecasts

In its proposal, the SEC would require the underwriters of SPAC IPOs to also underwrite the SPAC’s acquisition transaction. 

“Underwriters play a critical role in the securities offering process as gatekeepers to the public markets,” according to the SEC.

Citigroup, the third-largest banking institution in the U.S., is among several underwriters that are pausing SPAC mergers until underwriter liability is clear, the sources told Bloomberg. 

Across a two-year period from 2020 through 2021, Citi raised $31.6 billion from 146 IPOs, underwriting the most SPACs last year and the second-most the year prior. Citi is not planning to abandon SPACs altogether, the sources said.

Read more: SEC’s Disclosure Rules Point to Chilling Effect for SPACs

SPACs have slowed down this year after a frenzy, in part due to unexpectedly disappointing returns. Citigroup still raised $1.12 billion from five deals, second to Cantor Fitzgerald, Bloomberg data shows.

Headquartered in New York, Citi is waiting to hear from its own legal advisors before moving forward, the sources told Bloomberg. The bank’s decision to pause SPACs hasn’t been made public. A Citi spokesperson declined to comment.