SEC Settles with SPAC and Two Officers
SPACs have for some time been one of the most talked about investment vehicles. Their popularity soared quickly in part because of the apparent simplicity of the behicles. At the same times there are many questions about the sufficiency of the disclosure and the risks that investors face. Few cases have been brought by the Commission however. And, their popularity continues. The Commission’s most recent case in this area provides some insights into the investment vehicles. SEC v. Ulrich Kranz, Civil Action No. 23-cv-06332 (C.D. Ca. Filed August 4, 3023).
Named as defendants in the action are: Ulrich Kranz, a special advisor to the Executive Chairman of Canoo Inc. who resigned in April 2021 and Paul Balciunas, the v.p. and CFO of Canno until his resignation in March 2021. At the center of the case is Canoo Inc., a firm that designs and produced EVs whose share have been registered with the Commission under Exchange Act Section 12(b) and trades under the thicker GOEV.
Over a period of several months, beginning in August 2020, the financial projections Canoo furnished investors and others projections for 2021 showing that the firm would have revenue of $120 million and $250 million for 2022. The revenue was for providing engineering services to other companies. At the time Defendants Kratz and Balcciunas had information showing that significant projects on which the projections were based were not likely to develop.
At the end of March 2021 Canoo, which had just raised substantial sums from the public, announced that it would “deemphasize the engineering services line and remove the revenue from its public filings. The next day the firm’s stock price dropped about 21%.
Previously, Mr. Kranz had entered into an agreement with two Canoo investors. Under the terms of the agreement, he would receive up to $1 million in compensation for his work at Canoo. In October 2020 Mr. Kranz received over $900,000 from the two individuals. The sum was not disclosed as compensation as required. The complaint alleges violations of Securities Act Section 17(a)(3) and Exchange Act Sections 13(a) and 14(a).
To resolve the action Mr. Kranz agreed to be enjoined from future violations of Securities Act Section 17(a)(3) and Exchange Act Section 14(a) and from aiding and abetting violations of Section 13(a). He also consented to the entry of a three-year officer/director bar and to pay a penalty of $125,000. Mr. Balcciunas consented to the entry of a permanent injunction based on Exchange Act Section 14(a), to the entry of a two-year officer/director bar and to pay disgorgement and prejudgment interest of $7,500 and a penalty of $50,000. Canoo agreed to pay a penalty of $1,500.