What do you get when you combine pop culture’s new favorite buzzword with celebrity endorsements? SPACs. The use of special purpose acquisition companies has been on the rise for several months, but now that celebrities are involved, the SEC is finally paying attention. On Wednesday, the SEC issued an alert warning against investment decisions based solely on celebrity endorsement. Yesterday, an advisory committee to the commission hosted a meeting focused on investor risks and the adequacy of current protections. Today, the SPAC boom continues and its longevity remains unclear.
In its investor alert on Wednesday, the SEC warned that SPACs come with distinct risks from traditional IPOs, emphasizing that SPAC participation is a risky investment that should not be taken lightly. The commission showed specific concern with the lure of celebrity endorsements and pushed investors to conduct their own research rather than relying on the word of celebrities—this emphasized the need for greater disclosures. Following the alert, an advisory committee discussed other associated risks and a potential need for heightened regulation.
At the meeting, expert panelists fielded questions, primarily concerning the risks and rewards of the SPAC surge, and how they should be treated going forward. The chair of the commission, Allison Herren Lee, voiced her skepticism, stating “[SPACs’] performance doesn’t match the hype.” Lee alluded to a need for greater regulatory measures and growing regulator concerns: “we’re seeing more and more evidence on the risk side of the equation for SPACs.”
Others, however, expressed fear of enhanced regulation: “well-intentioned increased regulatory obligations around SPACs could make them less cost-effective,” and “telling investors they cannot make decisions for themselves only supports their suspicions that capital markets are for the wealthy.” SPACs are praised for “democratizing markets,” allowing otherwise unavailable access to high-growth companies for retail investors. Thus, a “tight iron grip” from regulators may “lock people out of being able to participate in the upside.”
The advisory committee meeting made one thing clear: the SEC is looking at SPACs. The committee did not agree on a concrete plan of action, but the SEC is “taking a hard look at the disclosures and other structural issues surrounding SPACs.”