Nasdaq Deficiency Letters: Early Warning Signals for SPAC Risks in 2025

In 2025, the Nasdaq SPAC market has become a battleground for regulatory scrutiny and market volatility. As the exchange tightens its grip on compliance standards, deficiency letters—formal warnings issued to noncompliant companies—have emerged as critical early warning signals for investors. These letters, often tied to quantitative metrics like bid price thresholds or market value requirements, now serve as harbingers of delistings, stock price declines, and litigation risks.

Case Studies: ScanTech AI and DT Cloud Acquisition

Recent examples underscore the gravity of Nasdaq's enforcement. ScanTech AI Systems (NASDAQ: STAI), a SPAC in the artificial intelligence sector, received two deficiency letters in May 2025. The first cited a failure to file its Q1 2025 Form 10-Q on time, violating Nasdaq Rule 5250(c)(1) ScanTech AI Faces Nasdaq Compliance Issues Over Late Filing^[1]. The second highlighted a drop in its market value below the $50 million threshold under Rule 5450(b)(2)(A) ScanTech AI Faces Nasdaq Compliance Issues Over Late Filing^[1]. With deadlines to regain compliance set for November 2025, the company's shares have already fallen 22% since the announcements, reflecting investor skepticism about its ability to meet Nasdaq's demands.

Meanwhile, DT Cloud Acquisition (DYCQ), a SPAC focused on digital transformation, faces similar challenges. Nasdaq issued deficiency letters in August 2025 for failing to maintain a $50 million market value of listed securities (MVLS) and a minimum of 1.1 million publicly held shares DT Cloud Acquisition Extends SPAC Lifeline to 2027 Amid Nasdaq Delisting Warnings^[2]. DYCQ's MVLS deficiency alone has triggered a 35% decline in its stock price over the past three months, as investors anticipate a potential delisting. The company's extension of its business combination deadline to February 2027, while providing temporary relief, does little to address underlying liquidity concerns DT Cloud Acquisition Extends SPAC Lifeline to 2027 Amid Nasdaq Delisting Warnings^[2].

Regulatory Tightening: A New Era for SPACs

Nasdaq's aggressive rule changes in 2025 have amplified these risks. The exchange has eliminated the 180-day cure period for companies that undergo reverse stock splits within the prior year, mandating immediate delisting if bid price or market value requirements are unmet Nasdaq Toughens Up Suspension and Delisting Process for SPACs^[4]. Additionally, new listing standards for Chinese companies—such as a $15 million minimum public float—reflect a broader effort to align SPACs with traditional IPO rigor Nasdaq Proposes Changes to its Listing Standards^[3]. These measures, while aimed at reducing “ultra-microcap” firms, have created a high-stakes environment for SPAC sponsors.

The consequences of noncompliance are severe. A Harvard Law review notes that Nasdaq's delisting process now allows for immediate suspension without a compliance period for SPACs failing to complete business combinations within 36 months Nasdaq Toughens Up Suspension and Delisting Process for SPACs^[4]. This shift has already led to a 40% increase in delisting notices for SPACs in 2025 compared to 2024, according to Nasdaq's noncompliant company list ScanTech AI Faces Nasdaq Compliance Issues Over Late Filing^[1].

Market Reactions and Litigation Trends

Empirical data reveals a clear pattern: Nasdaq deficiency letters trigger significant market reactions. A study published in The Journal of Financial Economics found that firms receiving multiple deficiency notices experience an average 18% stock price drop within 30 days, compared to 9% for single-notice cases Market response to stock exchange listing deficiency notices: Evidence from Nasdaq^[5]. SPACs, with their inherently speculative nature, are particularly vulnerable. For instance, 23andMe's stock fell 15% after a deficiency letter over its bid price, illustrating the sector's sensitivity to regulatory signals Market response to stock exchange listing deficiency notices: Evidence from Nasdaq^[5].

Litigation risks have also surged. In the first half of 2025, SPAC-related settlements reached record levels, including a $126.3 million payout in the Alta Mesa case and an $80 million resolution for Grab Holdings Nasdaq Toughens Up Suspension and Delisting Process for SPACs^[4]. These settlements highlight the legal exposure for sponsors and target companies failing to meet Nasdaq's heightened disclosure and compliance standards DT Cloud Acquisition Extends SPAC Lifeline to 2027 Amid Nasdaq Delisting Warnings^[2].

Strategic Implications for Investors

For investors, Nasdaq deficiency letters are no longer mere administrative notices—they are actionable signals. Companies like STAI and DYCQ demonstrate that delays in filings or market value dips can erode investor confidence and liquidity. The key is to monitor Nasdaq's public deficiency listScanTech AI Faces Nasdaq Compliance Issues Over Late Filing^[1] and assess a company's ability to execute compliance plans.

Moreover, the regulatory landscape is evolving rapidly. Nasdaq's proposed $25 million minimum public offering requirement for Chinese SPACs Nasdaq Proposes Changes to its Listing Standards^[3] and the SEC's enhanced scrutiny of financial projections DT Cloud Acquisition Extends SPAC Lifeline to 2027 Amid Nasdaq Delisting Warnings^[2] suggest that 2025 will see further consolidation in the SPAC market. Investors should prioritize SPACs with robust compliance frameworks and diversified pipelines, while avoiding those with repeated deficiencies.

Conclusion

Nasdaq's 2025 crackdown on SPACs has redefined the risk calculus for investors. Deficiency letters, once overlooked, now serve as critical indicators of impending delistings, stock volatility, and litigation. As the exchange continues to align SPACs with traditional IPO standards, the sector's survival will hinge on proactive compliance and transparent governance. For those willing to navigate these challenges, the SPAC market still offers opportunities—but only for those who heed the early warning signs.