Break Out the Cuffs, Ponch

It has been known for some time that special purpose acquisition companies (SPAC) are less an investment technique than they were regulatory arbitrage.

Basically,  it was all a scam.

Unfortunately, no one is going to jail: 

Yet another Wall Street investment fad has crumbled, this time a dodgy technique for taking companies public called SPACs, or special purpose acquisition companies. As is often the case, regular investors and rank-and-file employees are the losers; hedge fund managers and investment bankers are the winners. Not for the last time, regulators are stepping in to quash snake-oil schemes they didn’t do enough to stop when it might have made a difference.

It's worth taking note of this debacle now because it won’t be the last time Wall Street hustlers separate unsuspecting investors from their savings. It’s just the latest.

If you started paying attention to SPACs only a few years ago, you’d be forgiven for thinking they were a new financial elixir. In 2021, nearly 200 companies completed SPAC deals, up more than threefold from the year before. These deals were worth close to $500 billion, a fivefold increase.

But SPACs have been around for decades. Before a few years ago, however, only unsavory, little-known companies attempted to enter the public markets using this device. The transaction involves a financial player raising money from a pool of public investors to merge with a not-yet-identified company at a later date. SPACs had long been a backdoor path to an initial public offering that only a company that couldn’t do it the respectable way would pursue.

 ………

Late last year, Bloomberg counted more than 20 companies that had gone public by SPAC only to declare bankruptcy relatively shortly afterward. One of these was WeWork, the shared-workspace real estate company. WeWork’s backdoor IPO occurred well after company founder Adam Neumann had departed in a cloud of scandal. (Neumann reportedly is trying to take back control of WeWork, an effort that doesn’t seem to be going anywhere.)

It's fraud.  Jail the people who committed these fraud.

If you do this often enough, you will deter new fraudsters.