Remember That Financial Fad That Is Blowing Up?

Remember Saroff's Rule(12)
"If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive
Cartoon from here.."

No, not that one  ………

Or that one ………

Or that one ………

I am referring to the special-purpose acquisition company (SPAC), which created a way for a company to go public with no due diligence.

The short version is that you create an empty company that goes public, and hence has literally nothing to declare.

The company then goes public, and then uses the money to buy and take over another company, a real company with a real product without the normal financial deep dive.

The real company gets some of the proceeds, the Wall Street goons get their vigorish, and theoretically everyone is happy, except, perhaps, the people who bought into an IPO with none of the normal guide rails.

They were all the rage until about a year ago, and now we are seeing a spike in bankruptcies and companies running out of money, because the companies were never viable.

I can haz prosecushuns?

The SPAC boom took hundreds of risky companies to the stock market. The next stop for many is bankruptcy court.

Dozens of companies that merged with SPACs are running out of cash, joining at least 12 that have already gone bankrupt after combining with special-purpose acquisition companies.

More than 100 companies, including electric-scooter firm Bird Global Inc., Owlet Inc. and electric-car startup Faraday Future Intelligent Electric Inc. are running out of cash, according to a Wall Street Journal analysis of the companies’ cash and cash flow from operations data disclosed in regulatory filings.

Shares of many of these companies trade under $1, more than 90% below where they did when they went public, and are in danger of being delisted. Those that have raised cash typically have done it on onerous terms. Bird extended its runway by merging with its Canadian partner.

Many of these businesses were worth billions when they hit the market and drew in small investors excited at the prospects of space tourism, cryptocurrencies and electric cars. Companies that went public this way have since collectively lost more than $100 billion in market value.  

Fraud seems to be the dominant business model on Wall Street.