Navigating the Public Landscape: Lessons for SPAC Targets and Public Companies
The SPAC (Special Purpose Acquisition Company) boom of the last few years has waned over the past couple of years, however the aftermath of SPAC mayhem reveals that many private company targets were ill-prepared for the rigors of being publicly traded. These issues are compounded by heightened regulatory scrutiny, exemplified by the SEC’s recent enforcement action targeting “AI washing.” Companies seeking to go public—whether through a SPAC merger or a traditional IPO—must take note: Readiness is Everything!
SEC’s First “AI Washing” Enforcement Action
SEC has taken what this writer believes is the first formal SEC enforcement action against a public company for “AI washing.” The agency filed charges against restaurant technology company, Presto Automation Inc., for misleading investors by exaggerating its use of artificial intelligence. As outlined in the SEC’s press release and summarized by The D&O Diary, the company falsely claimed its AI capabilities were central to its operations, when, in reality, the technology was rudimentary and non-functional.
This case underscores the SEC’s growing focus on holding companies accountable for deceptive practices related to AI—a space increasingly touted to drive innovation and growth. Public companies should view this enforcement action as a warning shot, particularly as regulators expand their focus to emerging technologies. Transparency and honesty in communications with investors are paramount.
SPAC Targets Must Be Public-Ready
The SPAC structure offers private companies a faster route to public markets than the traditional IPO process. However, speed can come at a cost. Many SPAC targets were inadequately prepared to operate in the public sphere, facing challenges ranging from weak corporate governance to insufficient vendor support.
To thrive as a public company, SPAC targets need to build a solid foundation, including:
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A Skilled CFO with Public Company Experience: Navigating the complexities of financial reporting, compliance, and investor relations requires expertise that private company CFOs may lack. If a target’s CFO will remain but lacks significant public experience, it is critical they work with a PubCo consulting team that specializes in supporting your CFO.
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A Robust Investor Relations (IR) Strategy: Public companies must actively communicate with shareholders, analysts, and the market. The right IR team ensures transparency, confidence, and helps leadership avoid missteps in communicating with investors.
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D&O Insurance Tailored for Go-Forward Companies: Directors and Officers insurance is a critical safeguard against litigation risks that rise exponentially once a company goes public. Partnering with a provider experienced in SPAC/deSPAC risks is non-negotiable. The language and endorsements are everything on public D&O. It is critical to have a trusted advisor like the executive liability team at Churchwell to ensure you leadership and balance sheet are properly protected.
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Public Company Consultants: Leadership teams often need guidance on SEC compliance, corporate governance, and operational challenges. Partnering with firms specializing in public company support can help bridge the gap, ensuring the success of transition from private to public.
SPACs are not inherently flawed, but they demand readiness. Companies considering this path must embrace a proactive approach to risk management and governance to avoid becoming another cautionary tale. The team at Churchwell is well connected in the SPAC and PubCo ecosystems. It would be our pleasure to assist in recommendations for any of the above to well respected IR firms, CFOs (full-time) or fractional, or consulting firms to assist in public readiness.
The Regulatory Landscape Under the Biden and Trump Administrations
Notably, this enforcement action transpired under the Biden administration, which has emphasized stricter oversight of public companies and emerging technologies. However, with the upcoming transition to the Trump administration, questions linger about how regulatory priorities may shift. Historically, the Trump administration pursued a more deregulatory approach, but it remains to be seen whether this philosophy will extend to AI and SPAC-related oversight.
Partnering for Success
For traditional public companies, SPACs, and deSPAC go-forward entities, the key takeaway is clear: readiness and compliance are not optional. Companies must be proactive in assembling a team of trusted advisors, including insurance partners like Churchwell Insurance Agency, to mitigate risks and build a sustainable public market presence.
At Churchwell Insurance Agency, we understand the unique challenges public companies face. With access to over 100 insurance markets, we specialize in providing tailored D&O insurance solutions designed to protect your leadership team and company’s future. Our advisors ensure you have the protection you need in today’s volatile environment.
Trust the Churchwell team to work hard protecting what your team works hard building! Contact us today to learn more and discuss a complimentary D&O audit.
