Nasdaq Compliance Risks for SPACs: Liquidity and Governance Crises in the Wake of Delayed Filings

The Special Purpose Acquisition Company (SPAC) market, once a beacon of innovation and rapid capital-raising, now faces a perfect storm of Nasdaq compliance risks, liquidity constraints, and governance failures. Recent cases like Oak Woods Acquisition Corporation (OAKU) and Quantum Corporation (QMCO) underscore how delayed SEC filings are not just technicalities but systemic threats to investor confidence and market stability. These delays, coupled with regulatory scrutiny, are reshaping the SPAC landscape and forcing investors to reassess their risk tolerance.

Liquidity in Peril: The Cost of Regulatory Delays

Delayed SEC filings have become a double-edged sword for SPACs. When OAKU missed its Q2 2025 Form 10-Q deadline, Nasdaq granted a compliance extension until February 16, 2026, but only after a temporary reprieve until October 21, 2025 [1]. Such delays extend the time SPACs must hold capital in trust accounts, reducing liquidity for sponsors and investors. For example, prolonged SEC review periods—now averaging over 60 days for S-1/F-1 filings compared to 2021 levels [2]—have forced SPACs to delay mergers, risking expired PIPE commitments and eroded investor patience.

The liquidity crunch is compounded by Nasdaq’s stricter rules on SPAC business combination timelines. While the 36-month deadline remains, the exchange has curtailed extensions, limiting SPACs’ ability to navigate complex deals [3]. This rigidity is evident in Graphjet Technology’s recent appeal of a delisting decision, as the company scrambles to meet Nasdaq’s deadlines while addressing accounting disputes [5].

Governance Gaps: A Recipe for Regulatory Fallout

Governance weaknesses are at the heart of many compliance failures. OAKU’s situation is illustrative: its CEO and CFO are the same individual, a structure that raises red flags about internal controls [2]. Such overlaps are not uncommon in SPACs, where lean management teams prioritize speed over robust oversight. The SEC has repeatedly highlighted how inadequate controls lead to restatements and delayed filings, as seen in National Energy Services Reunited Corp.’s nine-month filing delay [4].

Quantum Corporation’s struggles further expose governance vulnerabilities. Its delayed Q1 2025 Form 10-Q stems from ongoing reviews of revenue recognition practices, a problem exacerbated by prior restatements and regulatory settlements [1]. These issues highlight a broader trend: SPACs often lack the infrastructure to manage post-merger complexities, particularly when acquiring companies with opaque financial histories.

Regulatory Overhaul: SEC’s New Rules and Market Implications

The SEC’s 2024 rule changes have added another layer of complexity. Enhanced disclosure requirements, including mandatory co-registrant status for target companies and stricter liability frameworks, aim to align SPACs with traditional IPO standards [6]. However, these rules have also increased the administrative burden on SPACs, which must now navigate a labyrinth of compliance deadlines. For instance, the requirement to redetermine smaller reporting company (SRC) status post-merger has forced SPACs to allocate resources to compliance rather than strategic growth [2].

The SEC’s focus on forward-looking statements is particularly impactful. By removing the safe harbor for projections under the PSLRA, the agency has heightened liability risks for sponsors and target companies [6]. This shift is likely to deter speculative SPAC deals, as seen in the 2024 slowdown, where only 77 de-SPAC M&A deals were announced compared to 167 in 2021 [2].

Investor Implications and the Road Ahead

For investors, the message is clear: SPACs are no longer a low-risk shortcut to growth. The combination of delayed filings, governance gaps, and regulatory overhauls has created a high-stakes environment. Sponsors with weak internal controls, like OAKU and QMCO, now face heightened delisting risks, while investors must contend with prolonged lockups and uncertain liquidity.

The path forward requires SPACs to adopt more rigorous governance frameworks. This includes separating executive roles, investing in financial controls, and aligning with Nasdaq’s compliance timelines. For Nasdaq and the SEC, the challenge lies in balancing investor protection with market innovation.

Conclusion

The SPAC model is at a crossroads. While regulatory scrutiny has curtailed some of its excesses, it has also exposed vulnerabilities that threaten the model’s viability. Investors must now weigh the potential rewards of SPACs against the growing risks of compliance failures, governance lapses, and liquidity constraints. In this new era, only SPACs with robust governance and transparent operations will survive.

Source:
[1] Oak Woods Acquisition Receives Nasdaq Compliance Notification, [https://www.stocktitan.net/news/OAKU/oak-woods-acquisition-corporation-announces-receipt-of-continued-bodwjrvwh4z3.html]
[2] A Summary and Early Analysis of SEC Final SPAC Rules, [https://www.hklaw.com/en/insights/publications/2024/02/a-summary-and-early-analysis-of-sec-final-spac-rules]
[3] Nasdaq Rule to Curtail Extensions for SPAC Business Combinations, [https://www.loeb.com/en/insights/publications/2024/07/nasdaq-rule-to-curtail-extensions-for-spac-business-combinations]
[4] Trio of SEC Enforcement Actions Underscores Importance of Internal Controls, [https://www.clearyenforcementwatch.com/2024/09/trio-of-sec-enforcement-actions-underscores-importance-of-internal-controls-including-in-ma-context]
[5] Graphjet Technology Files Form 10-K and Plans to Address Nasdaq Compliance Issues, [https://www.nasdaq.com/articles/graphjet-technology-files-form-10-k-and-plans-address-nasdaq-compliance-issues]
[6] SEC Adopts Major Changes to SPAC Rules, [https://www.clm.com/sec-adopts-major-changes-to-spac-rules]