Acting US Securities and Exchange Commission Chair Allison Herren Lee on Thursday warned investors of investing in special purpose acquisition companies, or SPACs.
“Lately, we have seen more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype,” Lee said during the welcoming remarks of the Investor Advisory Committee on Thursday, Bloomberg first reported.
Regulators have begun turning their eye to the frenzy surrounding SPACs. For the entire year of 2019, 59 SPACs raised $13.6 billion, according to SPAC Analytics. The figure quadrupled in 2020 to 248 and raised $83.3 billion.
But in the third month of 2021 alone, data already show 246 SPACs that raised $76.7 billion, comprising 75% of initial public offerings.
The acting chair on Thursday also said that her agency is looking into “the structural and the disclosure issues” of SPACs.
On Wednesday, the SEC released an investor alert that specifically warned of the risks involved with celebrity-backed SPACs.
“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 said. “Never invest in a SPAC based solely on a celebrity’s involvement or based solely on other information you receive through social media.”
The boom in blank-check firms, shell companies seeking to merge with private companies with the intention of taking them public, has drawn the scrutiny from regulators who are growing increasingly concerned about the risks these investment vehicles pose, especially to retail investors.
The boom in SPACs has also allowed the number of public listings by companies with zero revenues valued above $1 billion to exceed what was seen in the dot-com era.