Architects of an increasingly popular technique to take companies public will not get a “free pass” if they mislead investors, US securities regulators warned Thursday.
The Securities and Exchange Commission (SEC), weighing in on a flood of deals involving special purpose acquisition companies (SPACs), issued a directive saying it is scrutinizing the deals following concerns over “baseless hype,” celebrity sponsorships and other issues.
The deals have taken off over in the last year, with market participants saying they are faster to execute than traditional sales known as initial public offerings or IPOs.
SPACs have also gotten momentum from their association with prominent figures such as basketball star Shaquille O’Neal and former Trump White House economic advisory Larry Kudlow.
“Staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public,” said John Coates, acting director of the SECs division of corporate finance.
The agency dismissed claims from some commentators that SPACs have less legal liability than a conventional initial public offering (IPO).
“De-SPAC transactions give no one a free pass for material misstatements or omissions as they are subject to both The Securities Act and The Exchange Act, and may also give rise to liability under state law,” the agency said.
Last month, the SEC explicitly warned investors against supporting SPACs solely because of celebrity backing, saying “it is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.”
The agency in recent years also has cracked down on a burst of deals involving crypto-currencies hyped by celebrities and which tried to skirt securities rules by purporting to be investments in new companies or “initial coin offerings.”
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