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SPAC Boom Dries Up as SEC Warning Curtails Year’s Hottest Trend

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  • Hundreds of SPACs affected by SEC warrant accounting guidance
  • Too soon to tell if all will require restatements

An SEC warning about SPAC accounting errors has not only chilled the red-hot market but triggered the first of what could be a flood of financial restatements by the popular blank-check companies.

Northern Genesis Acquisition Corp., a special purpose acquisition company that plans to take a Canadian electric bus maker public, announced Tuesday that it would have to redo its last annual financial statement to comply with a major accounting shift forced by Wall Street’s top regulator.

The Kansas City-based SPAC could be the first of many blank-check companies forced to go through the onerous process of restating past earnings because of the Securities and Exchange Commission’s announcement about SPACs improperly accounting for key money-raising tools. The company didn’t respond to a request for comment.

The SEC rocked the SPAC market when it announced April 12 that SPACs needed to account for certain warrants as liabilities, not equity. The announcement halted initial public offerings and forced SPACs, the companies they have taken public, and armies of accountants and lawyers to sift through deal terms to determine if their accounting errors were significant enough to require the companies to issue restatements.

“It’s created a huge mess,” said Kristi Marvin, founder of SPACInsider, a research firm that tracks the deals. “It’s just a lot of paperwork everyone’s going to have to get through.”

The SEC called out accounting for warrants—incentives that allow investors to buy shares at a set price in the future and are a near universal feature of blank-check company deals. Depending on complex accounting rules that can trip up even the most seasoned accountants, warrants may be classified as either liabilities or equity on company balance sheets.

Prior to the April 12 announcement, most SPACs classified the warrants as equity. Under accounting rules outlined in ASC 815, liabilities must be recorded at fair value, a measurement technique that can make companies record swings in their earnings. The underlying economics and the company’s cash flows don’t change, but it’s a lot of work to tweak the accounting and determine knock-on effects. Hundreds of companies are affected, Marvin said.

“It’s had a significant effect on the market, and that’s because no one really knows what to do,” she said.

‘Chilling Effect’

The SEC’s guidance landed like a thud. Law firm Davis Polk & Wardwell LLP in a note to clients last week said no other SEC proclamation had such a “significant chilling effect” on capital markets activities.

That may have been the point. SPACs surged in popularity in 2020 in part because the way they take a company public avoids the paperwork and regulator scrutiny of a traditional IPO. The founders of the bare-bones shell companies raise money, go public, and then target a promising business to acquire, usually within two years. That business gets a shortcut to a public listing by merging with the SPAC.

Electric carmaker Nikola Corp. and online sports betting company DraftKings Inc. went public in 2020 through mergers with already public blank-check companies. Space tourism company Virgin Galactic Holdings Inc. went public via SPAC the year before.

A record 248 SPACs went public in 2020, and more than 300 have done so already in 2021, according to SPACInsider.

But the SPAC boom also spurred regulator scrutiny. The SEC in early April warned that companies that go public via SPAC need to have robust internal controls and enough financial reporting experience to get accounting right, the agency’s acting chief accountant said. A few days later, another top SEC official said SPACs don’t get a free pass on federal securities laws.

Then came the abrupt April 12 accounting announcement.

“The SEC was signaling, ‘You guys need to slow down for a while,’” said Julie Copeland, partner at StoneTurn Group LLP, a global advisory firm.

‘Burning the Midnight Oil’

And slow down they did. While some merger deals already in the works continued, SPACs themselves paused their initial public offerings as they sorted through the accounting guidance, SPACInsider data shows.

Some blank-check companies, like Provident Acquisition Corp. and Clarim Acquisition Corp., said in securities filings they were assessing how significant their accounting errors were, signaling a possibility of restatements.

Other companies that went through SPAC mergers like fast-food chain Burger Fi International Inc. and drugmaker 180 Life Sciences Corp. told regulators they would have to delay filing required financial statements as they digested the SEC’s guidance.

But it’s too early to tell if every accounting adjustment will require SPACs and the companies they have taken public to restate past financial statements, said Michael Poveda, partner at accounting firm UHY LLP.

The assessment hinges on whether the accounting shift will result in a material change to a company’s financial information. That will vary for every SPAC and also for the companies that went public via SPAC merger, Poveda said.

“It’s not a one-size-fits-all analysis,” Poveda said. “That analysis is going to be one that requires a lot of consultation.”

Some companies that went public via SPAC merger also were able to change their accounting under the wire to avoid an onerous restatement. Laser sensor startup Luminar Technologies Inc. said in its latest securities filing that it classified those warrants as liabilities, after saying April 1 that it needed more time to submit its annual 10K filing because it was wrestling with accounting for warrants.

The same went for battery technology company Romeo Power Inc. The company in late March said it needed an extension to file its 10K because of warrants woes but by April 15, its 10K had classified warrants in accordance with the SEC’s wishes.

Accountants, lawyers, and valuation specialists meanwhile are working behind the scenes to plot next moves, Poveda said.

“We’re spending a lot of time burning the midnight oil, staying on top of it and working with not only our clients, but everyone in the ecosystem to help make sure we get to the right place,” Poveda said.

Source: Bloomberg Tax – SPAC Boom Dries Up as SEC Warning Curtails Year’s Hottest Trend

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Source: https://spacfeed.com/spac-boom-dries-up-as-sec-warning-curtails-years-hottest-trend?utm_source=rss&utm_medium=rss&utm_campaign=spac-boom-dries-up-as-sec-warning-curtails-years-hottest-trend

Blockchain

Here’s how Coinbase, Kraken and others have been deciding which cryptos are securities

The industry group aims to develop an objective standard for determining which assets are securities. But ultimately it’s up to the SEC.

The post Here’s how Coinbase, Kraken and others have been deciding which cryptos are securities appeared first on The Block.

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The Crypto Rating Council has published its rubric for appraising whether or not a cryptocurrency is a security. 

The Crypto Rating Council, or CRC, is an industry group uniting many of the biggest names in crypto to put together standards for deciding which tokens are securities. Members include Coinbase, Anchorage, Kraken and Circle.

The newly publicized rubric aims to provide an objective means of scoring tokens. It is based on a series of questions, the answers to which yield numerical ratings that are supposed to quantify how likely it is that a given digital asset is a security. The CRC has published ratings for 27 tokens, but this is the first time the group has made its methodology public.  

The CRC says it has updated the rubric in response to changing legal realities, specifically “to take into account those facts which, in its view, seem to be most relevant in concluding whether an asset is likely to be viewed as a security in a court of law.”

The CRC originally made headlines upon its launch in fall of 2019 by aiming to put together a united front for the crypto industry to assemble standards to comply with the Securities and Exchange Commission (SEC).  But the group hasn’t been very active lately, at least in its public-facing work. Its most recent set of token reviews happened in early 2020. 

Arguments over whether a given asset qualifies as a security have frequently pitted token issuers against the SEC. SEC enforcement actions against development firms and issuers of tokens like EOS and GRAM were in large part responsible for ending the ICO boom of 2017-2018. 

Many in the industry have called on the SEC to release its own standards for determining which cryptocurrencies fall under the commission’s jurisdiction. In its own legal battle with the SEC, Ripple has, for example, pressed for the release of commission communications leading up to its determinations that Bitcoin and Ether are not securities, while XRP is. 

The CRC, for its part, found XRP to be a 4 out 5, with a score of 5 meaning that the asset is most likely a security. 

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Source: https://www.theblockcrypto.com/linked/104515/crypto-ratings-council-publishes-rubric?utm_source=rss&utm_medium=rss

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Blockchain

Ripple Reported Strong XRP Whale Accumulation While Still In Court

Ripple reported strong XRP whale accumulation while still being in court with the SEC as the quarter indicates the market has plenty of confidence in Ripple’s defense so let’s find out more in our latest ripple news. Ripple released its Q1 2020 report which shows a solid performance during the first quarter of the year […]

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Ripple reported strong XRP whale accumulation while still being in court with the SEC as the quarter indicates the market has plenty of confidence in Ripple’s defense so let’s find out more in our latest ripple news.

Ripple released its Q1 2020 report which shows a solid performance during the first quarter of the year and includes XRP sales that were up to 100% compared to the previous quarter and the data showing accumulation from the whale holders despite the current US SEC lawsuit. The XRP advocates grew in confidence as the lawsuit went on and in part, this was due to the reports of the questionable events surrounding the case. The New York Times posted an article on the “revolving doors” appointment of former SEC Jay Clayton at One River which is a hedge fund that reported strong purchases of BTC and ETH which eventually sparked concerns of conflict of interest.

XRP chart
Source ripple.com

As reported by Ripple, the first quarter of the year for the crypto space as a whole was groundbreaking with the total crypto market cap starting the year at $776 billion, forming a steady uptrend to end the quarter to a high point of $2.5 trillion. Ripple’s XRP sales hit $150 million in 2021 versus the $76 million in the last quarter of 2020 which is an increase of 97%. The company said that the on-demand Liquidity service contributed to the rise as ODL refers to the cross-border payment solution using XRP without the need to pre-fund accounts.

Ripple attributes the sale growth to a deeper engagement from the ODL customers and mentioned a drive to expand the ODL corridors during the APAC region which focuses on Southeast Asia. As well, the data shows that Q1 2021 was a period of XRP accumulation by the whales which is how Ripple reported strong XRP whale accumulation. The number of whale wallets that hold up to 10 million XRP increased from 308 to 319. Likewise, the number of wallets holding between 1 million and 10 million XRP went up from 1,125 to 1,196. The SEC filed charges against Ripple over the allegations that along with two executives, it sold $1.3 billion of unregistered securities over a seven-year period.

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A critical component of ripple’s defense is the assumption that XRP is the same as Ethereum or Bitcoin which the SEC deems non-securities. However, the SEC says that Ripple was not right to make this assumption. Jay Clayton joined One River Digital Asset Management as a paid advisor and the company invests hundreds of millions into BTC and ETH.

DC Forecasts is a leader in many crypto news categories, striving for the highest journalistic standards and abiding by a strict set of editorial policies. If you are interested to offer your expertise or contribute to our news website, feel free to contact us at [email protected]

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Source: https://www.dcforecasts.com/ripple-news/ripple-reported-strong-xrp-whale-accumulation-while-still-in-court/

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Crowdfunding

Global Digital Finance Issues Statement in Support of Eliminate Barriers to Digital Innovation Act Sponsored by US Representatives Patrick McHenry

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Global Digital Finance (GDF), a UK-based entity advocating on behalf of the digital asset (or crypto-asset) sector of Fintech, has posted a letter in support of the Eliminate Barriers to Digital Innovation Act of 2021 (HR 1602).

The Act was sponsored by US Representative Patrick McHenry, ranking minority member on the House Financial Services Committee. Introduced into the legislative process in March, the Act garnered several co-sponsors including Representatives Stephen Lynch, Glenn Thompson, Ted Budd, and Warren Davidson. The legislation seeks to clarify the treatment of digital assets on a regulatory basis. According to the language of the bill, if enacted, both the Securities and Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC) will be required to create a working group to tackle the difficult issues challenging the digital asset industry in the US.

In a release, GDF noted the recent comments by SEC Chairman Gary Gensler in regards to providing regulation for crypto exchanges. GDF states that it supports greater clarity for digital assets including trading venues and stands ready to assist. GDF members believe that the single biggest challenge impeding digital asset sector growth is the opaque regulatory treatment currently in existence.

Carl Schonander, Director of Americas Regulatory Affairs at GDF, issued the following statement:

“High-level legislative and regulatory attention to U.S. digital assets market development is welcome. Lawmakers and regulators should take care to promote investor protection and support for this maturing, but in many ways still nascent, industry. GDF principles and codes are a resource for legislators and regulators as they consider possibilities.”

The letter from GDF is addressed to Representatives McHenry and Lynch, stating:

“There is already a significant amount of regulatory cooperation in many of the major markets, which sends the right signals to the global community about regulatory certainty, and a managed approach to emerging policies and regulation for virtual assets.  … Should the Act become law, it could provide additional impetus for building on this collaboration. The proposal to create a joint Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) Working Group could help to lay the foundation for a more unified U.S. regulatory posture with respect to the digital assets industry, and GDF fully supports this. The report that the Working Group would be tasked with developing could provide the specific recommendations needed to solidify the United States’ leading fintech role. The key here will be to solicit information from stakeholders regarding where additional clarity is needed to safely and securely promote the digital assets industry to the benefit of all citizens and businesses.”

GDF adds that if the Act becomes law and a working group is established, it will seek to become a “stakeholder representative” on the group. Simultaneously, GDF suggests a Congressional event to discuss the importance of US digital asset regulation.

SEC Commissioner Gensler, a Democrat appointee, has already indicated his desire to work with Congress on creating a better regulatory approach for crypto. The bill was recently moved to the Senate Banking Committee – the next step in the legislative process.


GDF-Letter-HR1602-May-2021-FINAL.docx-1


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Source: https://www.crowdfundinsider.com/2021/05/175217-global-digital-finance-issues-statement-in-support-of-eliminate-barriers-to-digital-innovation-act-sponsored-by-us-representatives-patrick-mchenry/

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Crowdfunding

Global Digital Finance Issues Statement in Support of Eliminate Barriers to Digital Innovation Act Sponsored by US Representatives Patrick McHenry

Avatar

Published

on

Global Digital Finance (GDF), a UK-based entity advocating on behalf of the digital asset (or crypto-asset) sector of Fintech, has posted a letter in support of the Eliminate Barriers to Digital Innovation Act of 2021 (HR 1602).

The Act was sponsored by US Representative Patrick McHenry, ranking minority member on the House Financial Services Committee. Introduced into the legislative process in March, the Act garnered several co-sponsors including Representatives Stephen Lynch, Glenn Thompson, Ted Budd, and Warren Davidson. The legislation seeks to clarify the treatment of digital assets on a regulatory basis. According to the language of the bill, if enacted, both the Securities and Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC) will be required to create a working group to tackle the difficult issues challenging the digital asset industry in the US.

In a release, GDF noted the recent comments by SEC Chairman Gary Gensler in regards to providing regulation for crypto exchanges. GDF states that it supports greater clarity for digital assets including trading venues and stands ready to assist. GDF members believe that the single biggest challenge impeding digital asset sector growth is the opaque regulatory treatment currently in existence.

Carl Schonander, Director of Americas Regulatory Affairs at GDF, issued the following statement:

“High-level legislative and regulatory attention to U.S. digital assets market development is welcome. Lawmakers and regulators should take care to promote investor protection and support for this maturing, but in many ways still nascent, industry. GDF principles and codes are a resource for legislators and regulators as they consider possibilities.”

The letter from GDF is addressed to Representatives McHenry and Lynch, stating:

“There is already a significant amount of regulatory cooperation in many of the major markets, which sends the right signals to the global community about regulatory certainty, and a managed approach to emerging policies and regulation for virtual assets.  … Should the Act become law, it could provide additional impetus for building on this collaboration. The proposal to create a joint Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) Working Group could help to lay the foundation for a more unified U.S. regulatory posture with respect to the digital assets industry, and GDF fully supports this. The report that the Working Group would be tasked with developing could provide the specific recommendations needed to solidify the United States’ leading fintech role. The key here will be to solicit information from stakeholders regarding where additional clarity is needed to safely and securely promote the digital assets industry to the benefit of all citizens and businesses.”

GDF adds that if the Act becomes law and a working group is established, it will seek to become a “stakeholder representative” on the group. Simultaneously, GDF suggests a Congressional event to discuss the importance of US digital asset regulation.

SEC Commissioner Gensler, a Democrat appointee, has already indicated his desire to work with Congress on creating a better regulatory approach for crypto. The bill was recently moved to the Senate Banking Committee – the next step in the legislative process.


GDF-Letter-HR1602-May-2021-FINAL.docx-1


Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://www.crowdfundinsider.com/2021/05/175217-global-digital-finance-issues-statement-in-support-of-eliminate-barriers-to-digital-innovation-act-sponsored-by-us-representatives-patrick-mchenry/

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