SEC Launches Probe Into SPAC Craze

The U.S. Securities and Exchange Commission (SEC) is launching a probe into the wave of startups going public via special purpose acquisition companies (SPACs), Reuters reported on Thursday (March 25), citing sources.

The SEC wants information from four Wall Street bankers about how they are managing the risks involved, four sources told Reuters. SPACs, also known as blank check companies, are essentially shell corporations that buy startups with the specific intent of taking them public.

Letters sent to four banks by the SEC asked for details about the number of active deals and the associated fees and how the investments are being managed internally, the sources said, per Reuters. Further, the U.S. securities regulator had questions about compliance and reporting, the sources said.

Not yet a formal investigation, the SEC wants the banks to voluntarily turn over the requested data, two of the sources told Reuters. One source added that the letters were sent by the agency’s enforcement division, which could be a precursor to an official probe.

SPACs have grown worldwide to $170 billion this year, more than the $157 billion blank check filings across all of 2020, according to Refinitiv data, per Reuters.

One concern the SEC has raised is the increased risk for insider trading regarding when a SPAC goes public and when its acquisition targets are announced, the second source added.

“Wall Street’s biggest banks are being asked: what’s going on?” the source said.

The first six weeks of this year saw 160 SPAC initial public offerings (IPOs), with proceeds of more than $50 billion, compared to $83.4 billion raised in all of 2020, across 248 IPOs.