Have you heard about SPACs? (AKA, "Blank check companies."
The short version is that they are shell companies created to raise capital to take other companies public.
The SPAC issues shares, raises money, and then buys a company, taking the target public.
If this sounds dodgy, as in, "Why don't those companies go public on their own?" you are right.
The answer is, as far as I can tell, evading regulations and increasing the opacity of the investment, since there is no SEC due diligence and the like.
Their rates of returns to investors suck, as they are typically a number less than 0, a loss, though the managers make bank, and I suppose money launderers are OK with taking the hit.
As such, it is not surprising that the SEC has opened an investigation into the recent explosion of these arcane financial instruments:
The U.S. securities regulator has opened an inquiry into Wall Street’s blank check acquisition frenzy and is seeking information on how underwriters are managing the risks involved, said four people with direct knowledge of the matter.
The U.S. Securities and Exchange Commission (SEC) in recent days sent letters to Wall Street banks seeking information on their special purpose acquisition company, or SPAC, dealings, the four people said.
The SEC, which declined to comment for this story, has previously said it was monitoring the SPAC boom, but the letters are the strongest sign yet that it is stepping up scrutiny of such deals and the Wall Street banks that underwrite them.
Wall Street’s biggest gold rush of recent years, SPACs have surged globally to a record $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed.
Investors have sued eight companies that combined with SPACs in the first quarter of 2021, according to data compiled by Stanford University. Some of the lawsuits allege the SPACs and their sponsors, who reap huge pay-days once a SPAC combines with its target, hid weaknesses ahead of the transactions.
Hiding weakness ahead of the transactions is the PURPOSE of SPACS.
BTW, if you are wondering just how dodgy this whole mess is, look no further than WeWork, whose IPO infamously collapsed on insider looting and misleading accounting. They now intend to go public via merging with a SPAC:
Even though WeWork has long lost billions of dollars, it always found ways to attract huge investments from deep-pocketed investors. Now, less than two years after it was rescued from a collapse, the co-working company has found yet another backer willing to overlook its losses.
The company announced on Friday that it had agreed to merge with a blank-check firm in a deal that would give it a listing on the stock market it was denied when it was forced to shelve an initial public offering as investors questioned its financial strength and dubious governance practices.
Instead of a traditional I.P.O., WeWork is merging with BowX Acquisition, a company listed on the stock exchange for the sole purpose of buying a business, in a type of deal that has become hugely popular in recent months. Investors, bankers, and even celebrities and athletes have rushed to float such special purpose acquisition companies, or SPACs, because they offer their creators a chance to mint huge profits relatively quickly. And merging with these vehicles is attractive to companies like WeWork because they provide an express lane onto the stock market without the obstacles that scuttled WeWork’s public offering in September 2019.
"Obstacles," what a quaint way to describe flagrant fraud and misrepresentation.
This is yet another way for Wall Street to steal from you,