SPAC Buying Slows as Regulators Propose Rule Change, Reviews of Prior SPACs

Attorney Advising Disclaimer

A CNBC analysis of special purpose acquisition companies (SPACs) confirmed that while SPACs enjoyed an IPO frenzy from late 2020 through March 2021, the number of new SPACs is drastically down in April, perhaps thanks to losses in existing SPACs and an SEC guidance to classify SPAC warrants as liabilities instead of equity instruments.

In March, we wrote of unsuitably risky investments called Special Purpose Acquisition Companies or SPACs, and warnings from industry insiders ranging from the SEC's investor alert stating "it is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it" to one analyst's classification of SPACs as "a license to rip investors off."

According to CNBC's report, the SEC's proposed accounting rule change to classify SPACs as liabilities would remove an incentive rather familiar to high-risk vehicles in other areas of the securities industry: that of low regulatory oversight and the ability to move quickly, often ahead of regulators and investigators.

By potentially increasing scrutiny on SPACs—in order to protect more moderate or conservative investors—the SEC's move could cut into the SPAC free-for-all that often outpaced investigation and enforcement.

In early 2021, FINRA issued a report on anti-money laundering (AML) regulatory obligations, including SPACs in a category on emerging AML and other financial crime risks.

Specifically, FINRA wrote that because of their ability to skirt around traditional regulatory requirements and rules, SPACs carry increased risks of fraud and other misconduct, including misrepresentations; omissions of material facts in offering documents and communications; undisclosed fees; and fraudulent insider trading.

With the SEC's recent decision toward liabilities and an emphasis on taking a closer look at SPACs for suitability and other factors, perhaps the SPAC as "a license to rip investors off" via "crazy speculation" will give way to a more traditional approach and standard for recommending this potentially volatile and risky product: one which places the client's best interests first.

If you have invested with a stockbroker or investment adviser in a special purpose acquisition company (SPAC) that was unsuitably recommended and not in accordance with your risk tolerance level or investment objectives, and this incongruous transaction has proven harmful to your financial interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

All information in the above post was verified as accurate at the time of posting. We invite readers and the subject(s) of the posting to contact us with new or updated information.

Related Posts
  • After $13 Million in Penalties for 'Widespread Failure,' Oppenheimer Fined $500,000 for Supervisory and Suitability Gaps Read More
  • FINRA barred former Independent Financial Group (IFG) broker Brett Arthur Hartvigson of San Diego, California for refusing to cooperate with its investigation into allegations that were part of a complaint. In 2021, while associated with IFG, Brett Harvgi Read More
  • Stifel Nicolaus Failed to Detect Unsuitable Recommendations Despite Risk Policy, Says FINRA Read More