Assessing the Risks and Strategic Implications of Nasdaq Compliance Violations for SPACs: The Case of Oak Woods Acquisition

The recent compliance missteps of Oak Woods Acquisition Corporation (OAKU) underscore a critical juncture for Special Purpose Acquisition Companies (SPACs) navigating an increasingly stringent regulatory landscape. OAKU’s failure to file its 2025 Q2 10-Q on time triggered a Nasdaq compliance notification, granting the company until October 21, 2025, to submit a remediation plan and potentially until February 16, 2026, to file the report [1]. While the listing remains intact for now, the incident reflects broader systemic vulnerabilities in SPAC governance and financial reporting, particularly during the pre-merger phase when transparency is paramount [3].

Regulatory Tightening and SPAC Viability

Nasdaq and the SEC have intensified scrutiny of SPACs since 2024, driven by investor losses and governance failures. The SEC’s 2024 rule changes, including co-registrant liability for target companies and enhanced disclosure requirements, have raised compliance costs and reduced speculative activity [4]. Nasdaq’s revised business combination timelines—limiting extensions and shortening merger windows—have further constrained SPACs’ operational flexibility [1]. For OAKU, the CEO-CFO duality exacerbates concerns about internal controls, a red flag in an environment where governance gaps are no longer tolerated [1].

The fallout from delayed filings is not hypothetical. A 2025 report notes that 26% of 2021 SPACs liquidated before finding targets, while post-de-SPAC stock performance has been abysmal, with many losing half their value [1]. J.P. Morgan’s analysis reveals that 90% of 2020–2021 SPACs delivered negative net returns, with median investor losses exceeding 80% [3]. These outcomes have fueled regulatory action, including the SEC’s $10 million penalty against Marcum LLP for audit failures in SPACs [5], signaling a shift toward holding gatekeepers accountable.

Investor Confidence and Market Reactions

Investor trust in SPACs has eroded amid compliance violations and underperformance. A 2025 study found that SPACs underperform traditional IPOs in operating and financial metrics, with merger timelines and redemption rates as key risk factors [2]. OAKU’s case is emblematic: delayed filings and governance flaws could trigger redemption waves, as seen in Broad Capital Acquisition Corp. (BRAC), where 1.6 million shares were redeemed, leaving just 101,216 shares outstanding [3]. Such scenarios highlight the fragility of SPAC capital structures and the reputational damage from regulatory noncompliance.

The SEC’s 2024 Subpart 1600 rules, which mandate detailed disclosures on sponsor compensation and conflicts of interest, aim to address these issues [4]. However, critics argue these rules may deter sponsors and investors, stifling SPAC innovation [4]. Meanwhile, Nasdaq’s MVUPHS requirements for microcap IPOs have excluded resale shares from eligibility thresholds, further limiting smaller SPACs’ access to capital [1].

Strategic Implications for SPAC Sponsors

For sponsors, the OAKU case underscores the need for robust compliance frameworks. Key strategies include:
1. Governance Reforms: Avoiding overlapping executive roles and establishing independent audit committees to mitigate conflicts [1].
2. Proactive Disclosure: Aligning with SEC’s enhanced transparency mandates to preempt litigation risks [4].
3. Liquidity Management: Shortening merger timelines (e.g., 12–18 months) to reduce capital erosion from redemptions [1].

The Cayman Islands’ rise as a SPAC domicile—driven by favorable legal frameworks and reduced Delaware litigation—also reflects sponsors’ attempts to mitigate regulatory risks [1]. However, these measures cannot fully offset the reputational and financial costs of noncompliance, as evidenced by OAKU’s precarious position.

Conclusion

Oak Woods Acquisition’s compliance violation is a microcosm of the SPAC market’s broader challenges. As regulators prioritize investor protection and market integrity, SPACs must adapt to a landscape where governance, transparency, and timely reporting are non-negotiable. For investors, the lesson is clear: SPACs are no longer a low-risk shortcut to growth. The path forward demands rigorous due diligence, strategic agility, and a willingness to embrace the regulatory realities of a transformed market.

**Source:[1] Nasdaq Compliance Risks for SPACs: Liquidity and Governance Crises in the Wake of Delayed Filings [https://www.ainvest.com/news/nasdaq-compliance-risks-spacs-liquidity-governance-crises-wake-delayed-filings-2508/][2] Are SPACs a good investment deal for investors? A Comparative Analysis [https://www.emerald.com/jsbed/article/32/3/705/1254418/Are-SPACs-a-good-investment-deal-for-investors-A][3] SPAC Failure and Shareholder Impact: The Case of Broad Capital Acquisition Corp. [https://www.ainvest.com/news/spac-failure-shareholder-impact-case-broad-capital-acquisition-corp-2507/][4] Impact of New SEC Disclosure Rules on Special Purpose Acquisition Companies [https://www.cpajournal.com/2025/03/31/impact-of-new-sec-disclosure-rules-on-special-purpose-acquisition-companies/][5] SEC Continues to Focus on SPAC Market [https://www.troutman.com/insights/sec-continues-to-focus-on-spac-market/]