Mon, Aug 16, 2021
Kroll Institute Newsletter – July Edition
The Kroll Institute newsletter opens the lens on topics related risk mitigation, good governance and transparency. Here’s what our Kroll Institute Fellows think you should be paying attention to this month.
The Summer Olympics, Pandemic and Security
Jordan Strauss, Kroll Institute Fellow, Managing Director, Business Intelligence and Investigations
- Will they and should they be canceled? Balancing national pride with the health and economic consequences is difficult. Look to athlete illnesses and continued sponsor withdrawal as the best indicator, especially as the host country population becomes increasingly hostile to the idea of the games continuing.
- Security may be easier than usual this year because of the absence of spectators. Olympic security is highly complex, with multi-national information and intelligence sharing, layers of security moving inwards towards the games and pre-staging of emergency response just in case.
- Traditionally, Olympic security requires years of planning and it is focused on traditional counterterrorism concerns. Two signal events in modern counterterrorism history happened at the Olympics: the 1972 Munich terror attack, which shaped generations of counterterrorism forces in Europe and the U.S., and the 1996 Atlanta bombing, which sped the creation of specialized U.S. DOJ legal teams, focused on critical incident response.
- With many nations focused on the pandemic for much of 2020, and with security agents themselves vulnerable to infection, it will be interesting to watch developments in the security element of the games. Ideally, security is visible enough to deter opportunistic crime but not so much so that it dampens the national spirit (and tourist experience) for the host nation. Always present, but as invisible as possible—like an iceberg.
SPAC-Related Enforcement Actions (Read more about our guidance here)
David Larsen, Kroll Institute Fellow and Managing Director, Alternative Asset Advisory
Ken C. Joseph, Kroll Institute Fellow and Managing Director, Financial Services Compliance and Regulation
- For the six months ended March 2021, the securities markets saw an unprecedented number of SPAC IPOs. The accounting treatment of SPAC warrants has been much in the news over the past quarter—a change in interpretation effectively stopped the SPAC market for a few months in April and May.
- What is often missed because of the focus on SPAC Warrant Liability treatment is the SEC’s additional focus on overall SPAC liability risk under U.S. federal securities laws. On April 8, 2021, John Coates, Acting Director of the SEC Division of Corporation Finance, issued a statement which highlighted that caution should be exercised in the context of:
- Overreliance on the Private Securities Litigation Reform Act as a safe harbor for forward-looking statements in securities filings
- Providing projections not commonly found in conventional IPO prospectuses
- The potential for material misstatements or omissions in a de-SPAC transaction
- On the heals of this statement, on July 13, 2021, the SEC charged Stable Road Acquisition Corp., the SPAC’s proposed merger target, Momentus Inc., the target’s CEO, and the SPAC’s sponsor, in connection with false and misleading claims made by the SPAC and the target. The SEC alleged that the SPAC and the target misled investors the SPAC failed to conduct adequate due diligence on the target’s claims and projections.
- The July 13 enforcement action was not the first SPAC-related action to echo the same types of concerns. In June 2019, the SEC brought an enforcement action against Ability, Inc., its CEO and CTO, alleging that the defendants painted a “rosy but false picture of Ability’s existing business and projected future revenues” to obtain approval from the SPAC’s shareholders for the proposed merger. Also, in September 2020, the SEC brought an enforcement action against Akazoo SA, alleging that it made false or misleading statements to SPAC investors regarding its finances, operations, and subscriber base.
- Based on these three enforcement actions, it is clear the SEC’s position is that IPO via a SPAC acquisition is not a blank check to ignore federal securities laws or to make materially false or misleading statements and disclosures to investors.
The Impact of Cuba’s Protests
Chris Campbell, Chief Strategist
- Thousands of Cubans took to the streets to protest food and medicine shortages and denounce the ruling regime, in what has been the largest expression of public dissent in Cuba in almost three decades. U.S. President Biden issued a statement expressing support for the Cuban people “and their clarion call for freedom and relief from the tragic grip of the pandemic and from decades of repression and economic suffering” at the hands of the authoritarian government.
- For months, the Biden administration has been slow walking its policy posture regarding Cuba, despite the president’s campaign promises to roll back the Trump administration’s sanctions-driven approach. These recent events have likely forced the president’s hand and most observers expect to see the administration take definitive steps to clarify its position and increase pressure on the regime and offer support to those suffering through a humanitarian crisis.
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