Your favorite celebrities? Follow them on Insta. Follow them on TikTok. Just don’t follow them into SPACs.
This week the Securities and Exchange Commission put out a warning geared specifically toward special purpose acquisition companies (SPACs) that are touted by celebrities. It’s a warning couched in an “investor alert” that debuted on Wednesday (March 10).
The SEC cautioned that “celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors.”
That’s a shot across the bow for the investment class, which as just about everyone knows by now, has been on a torrid pace of new listings through the past several months. And at least a few of those listings have had a thumbs-up from celebrities. A partial and by no means comprehensive list includes athletes and musicians: Gronk. A-Rod. Ciara. Even Larry Kudlow.
“Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. 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 commission said, noting, “SPAC transactions differ from traditional IPOs and have distinct risks associated with them. For example, sponsors may have conflicts of interest so their economic interests in the SPAC may differ from shareholders.”
In other words, find out the full story before putting your money where a basketball star’s mouth is (Shaq’s touted SPACs). Do your own due diligence.
CNBC noted that Jim Cramer previously raised a red flag on these celebrity SPACs, saying they “feel like an inside joke for the super-rich. These newer SPACs increasingly feel like an inside joke for the super-rich and a way for celebrities to monetize their reputations,” he said, according to the site. “Believe me, you don’t want to invest in someone else’s inside joke, so please, please, please the way to prevent getting hurt [is to] do homework on the people and if there are businesses before you go near these things.”
The ”celebrity crush” into SPACs is reminiscent of another time, when — not all that long ago — the celebrity tout du jour was tied to what can only be called “ICO mania.” The initial coin offerings were all the rage and were backed by rappers, boxer Floyd Mayweather and others.
If history does not repeat itself exactly, it certainly rhymes. In November of 2017, the SEC issued a bulletin that urged caution around celebrity-backed ICOs. Part of the controversy back then was that the celebrities were not disclosing the nature, scope or type of compensation received with their social media promotions of the ICOs.
It may be the case that this time around that the SPAC vehicles are not tied to, nor include any promotions/compensation to set up the SPACs and advocate for them on social media. But here’s a bit from that 2017 release:
“Investment decisions should not be based solely on an endorsement by a promoter or other individual. Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws. Conduct research before making investments, including in ICOs,” said the SEC.
What was true then is true now.
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