Top US securities regulator quashed Circle’s efforts to list through Spac

25 January, 2023 by Laura Noonan and Scott Chipolina in London

Stablecoin operator Circle has blamed the US securities regulator for the failure of its $9bn plans to go public through a blank-cheque company.

The group, which jettisoned listing plans in December, told the Financial Times that the deal was derailed not because of the turbulence in the crypto markets last year, but because the Securities & Exchange Commission had not signed off on what would have been one of the world’s biggest deals involving a Spac.

Circle, which runs the world’s second-biggest stablecoin, agreed to combine with a vehicle set up by veteran banker Bob Diamond in July 2021 when the digital assets market was in the midst of a bull run that saw popular tokens like bitcoin reach record values by November.

One year later, the crypto market plunged, which caused a spate of bankruptcies, including most notably the collapse of marquee trading shop FTX. Circle has more than $44bn of tokens in circulation, down from a peak of $56bn in June

The abandonment of the deal also coincided with a broad change in sentiment towards Spacs in general as the world’s leading central banks began increasing interest rates, and economists predicted long recessions. A key index, the AXS De-Spac ETF, closed 2022 down almost 75 per cent.

Circle said that neither turbulent markets nor fearful investors were the causal factor in the abandonment of its Spac. “The business combination could not be consummated before the expiration of the transaction agreement because the SEC had not yet declared our S-4 registration ‘effective’,” the group said. An S-4 registration is a registration document that companies have to file with the SEC seeking permission to offer new shares.

“We never expected the SEC registration process to be quick and easy,” Circle added. “We’re a novel company in a novel industry. It’s necessary, appropriate and reasonable for the SEC to have a thorough, rigorous review process, especially given the swift expansion and evolution of Circle’s business during the 15 months between our first filing with the SEC in August 2021 until the termination of the proposed merger last month.”

A person familiar with the situation told the Financial Times that there was a “lot of time lost” between Circle’s initial filing of its intention to do a Spac and December 2022, when the Spac timed out.

“There was an awfully long time waiting for approvals, and asking questions with the SEC,” the person said, citing “regulatory confusion” around the US’s interactions with crypto companies that prevailed for much of 2021.

The person said that the implosion in late 2022 of Bahamas-based FTX, which revealed gaping faultlines in how crypto groups were run and highlighted the damage they could do, “in my mind made it impossible for anyone to approve anything”. The SEC declined to comment.

The collapse of the deal follows a series of setbacks for the industry’s relationship with the SEC. A number of bitcoin cash ETFs have failed to make headway with the regulator, and late last year the SEC confirmed its decision to reject a bid by crypto fund management heavyweight Grayscale to launch one of its own, over concerns about the underlying digital assets market.

More recently, the SEC sued bankrupt crypto broker Genesis and crypto exchange Gemini, claiming that a crypto asset-lending programme was not properly registered as a securities offering.