Last night, LGL Systems Acquisition Corp. (LGL), the $125 million aerospace, defense and communications industries-focused SPAC, filed a new S-1 ahead of their anticipated IPO pricing this week. However, the new filing is missing one of its Co-Chairmen, Bob LaPenta.  This comes on the heels of LGL delaying their pricing for the past week, rumored to be because of a delay in its Nasdaq review.

If you recall, LGL has a big roster of names attached to their deal – 11 members on the Board and Management team, plus five Special Advisors.  However, Bob LaPenta and Marc Gabelli, as Co-Chairmen, were the marquee names and leaders of this SPAC.  So, for one of them to be removed this late in the game, especially after Mr. LaPenta had already spent the last two weeks or so on the road marketing this deal, is odd, to say the least.  After all, a SPAC is sold based on its team members since there is no operating company to speak of. So what happens if the team you met with isn’t the team you’ll be indicating for in the IPO?  Well, unfortunately, it’s about to get a little murkier.

Since the removal of a Co-Chairman this late in the game is so atypical, it generally leads to a lot of Googling to see if you can put the pieces of this puzzle together.  Especially when it’s coupled with a delay in the expected pricing of the IPO. As it turns out, Revolution Lighting Technologies, of which Mr. LaPenta is the Chairman, CEO, and President, is currently being investigated by the SEC for accounting fraud.  The charges are related to “bill-and-hold” transactions where the seller does not ship goods to the buyer, but still records the related revenues.  As a result, Revolution’s Audit Committee has recommended revising the firm’s fiscal results from 2014 through the first half of 2018.  To be clear, according to the Audit Committee, Bob LaPenta did not know about the issues and he remains the company’s CEO to this day, whereas the company dismissed their CFO. Nonetheless, the SEC investigation is a plausible explanation for the delay of the IPO due to Nasdaq review.  An ongoing SEC investigation into the company that is associated with a listing’s Chairman is pretty much a non-starter no matter how you slice it.

The real problem is, this wasn’t initially disclosed in the prospectus.  At the very least, investors are generally open to hearing an explanation.  And perhaps there is more to the story than can be gleaned from a Google search and Mr. LaPenta could have gotten investors comfortable with the issue. But, again, it wasn’t disclosed.  So either the underwriters missed this in their due diligence process or they (the underwriters) deemed it inconsequential since Mr. LaPenta had no knowledge of the issue.  Either way, the Nasdaq now finds this issue very much consequential and Mr. LaPenta has been removed so the IPO can proceed.

Updated:  there is a risk factor on page 39 of the prospectus that does reference the SEC investigation.

The team still has 10 more members with solid aerospace, defense and communications backgrounds. Fundamentally, it’s still a pretty good roster.  However, investors do not like surprises and in particular, they definitely do not like “SEC investigation” surprises, but ultimately, everyone will probably get comfortable with issue. The conflict of having Mr. LaPenta on the Board has now been removed and this SPAC should price.  Stay tuned for any further developments and expected pricing dates.

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