The US Securities and Exchange Commission (SEC) is going to investigate the recent boom around empty shell companies to enter stock exchanges. These are stock exchange funds that have been set up specifically with the aim of buying a company, a so-called Special purpose Acquisition company, or ‘SPAC’. That’s what sources say to Reuters news agency. Among other things, the risks associated with these practices are looked at, according to the insiders.
The SEC has reportedly sent letters to Wall Street investment banks requesting information about their transactions around these stock exchange funds. This request is voluntary and, according to the sources, it is not yet a formal investigation. For example, it asks for information about commissions that banks receive for their services to SPACs and matters such as accounting, regulation and supervision.
If a company is acquired by a SPAC, that company is listed on the stock exchange. This requires less information to be given to the market than in the case of a traditional IPO. At the SEC there would be concerns as to whether thorough enough Book Research is being done on companies that are being acquired by a SPAC and also on, for example, pre-knowledge trading when announcing acquisitions. There are also questions as to whether investors are sufficiently informed about the risks.
The market for SPACs has grown enormously in recent times. In the past few years, more than seven hundred of which are investment vehicles in the stock market in New York city, often funded by billionaires, businessmen, corporations, and even celebrities, such as the well-known former basketball player Shaquille O’Neal, and tennis player Serena Williams. These IPOs were worth over $ 270 billion. There are also more and more SPACs active in Europe.
Another cause of concern about the high popularity of SPACs on the stock exchanges is that there are less and less suitable companies to take over. There is a chance that investors in spaces will end up empty-handed because there is no profitable acquisition prey with real operational activities to be found and therefore no money can be earned by the investment fund.