As a result, the sponsors will benefit more than investors from the SPAC’s completion of a business combination and may have an incentive to complete a transaction on terms that may be less favorable to you.” He posted a March 10 investor alert that warned, “SPAC sponsors generally acquire equity in the SPAC at more favorable terms than investors in the IPO or subsequent investors on the open market. “The rapid increase in the volume of SPACs represents a significant change and we are taking a hard look at the disclosures and other structural issues surrounding SPACs,” tweeted John Coates, acting director of the SEC’s Division of Corporation Finance.
The SEC has been increasingly signaling concern about the SPAC market, with the latest announcement coming on Wednesday. Over time, as many studies and analyses have shown, investors in SPACs lose money. “Congress is going to have to do the initial heavy lifting on this,” Andrew Park, senior policy analyst at Americans for Financial Reform, told Institutional Investor, adding that “the best thing the SEC can do is make a lot of noise.”Īmericans for Financial Reform, allied with the Consumer Federation of America, are pushing Congress to “close the legal loopholes” that they say have ended up enriching sponsors of SPACs, or special purpose acquisition companies, and their initial investors - primarily hedge funds - at the expense of retail investors.
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If the Securities and Exchange Commission wants to crack down on what critics view as rampant abuses in the booming SPAC market, it is going to need help from Congress, according to a financial reform group.