Last Wednesday, John Coates, acting director of the U.S. Securities and Exchange Commission’s (SEC) Corporation Finance Division, said there are “significant and yet undiscovered issues” related to special-purpose acquisition companies, or SPACs, that are “not going to stop them… but they are… as yet incompletely worked through mechanisms.”
SPACs are shell companies that issue stock but have no assets. When it raises enough money, the SPAC merges with another company. The SPAC itself then disappears, with shareholders owning the company the SPAC merged with.
SPACs are trending on Wall Street as a quick way to bring companies public that might not meet SEC criteria to issue shares on their own. 
SPACs began to draw notice when star investors such as William Foley, former CEO of Fidelity National Financial, and ex-Citigroup executive Michael Klein took them up. They became even more popular when celebrities, including tennis star Serena Williams and skateboard figure Tony Hawk, got involved.
In 2020, 248 SPAC deals raised $83 billion; as of 8 April this year, 301 SPACs had raised $98 billion, the WSJ reported.
At least 15 companies showing no revenue have either listed publicly or plan to this year, all at market valuations of at least $1 billion, the largest number of non-biotech firms in that rare realm since the 1990s, according to University of Florida economist Jay Ritter, who tracks public stock offerings.
SPACs raise special concerns around investor protection, officials have said.
For example, a fledgling company taken public through a SPAC suddenly must meet stringent accounting and governance standards that it might not be prepared to cope with.
Also, many companies that SPACs take public often have no revenue but talk up their projected revenues, claiming they will log billions of dollars in sales within a few years. 
Such grandiose claims are forbidden to firms going public through conventional public offerings scrutinized by the SEC.
The SEC regularly reviews SPACs’ fund-raising disclosures and issued a statement late last month reminding SPACs of their obligations under federal regulations. 
TREND FORECAST: The nearly $84 billion that SPACs raised last year –was up over six times the amount from the year before. Under the guise of buying privately-held companies and then listing them on the stock exchange casino to drive up their value and cash in big, is reminiscent of the dotcom boom and the subprime mortgage fiasco.
TRENDPOST: Is the end of SPAC-mania near? These special-purpose acquisition companies that serve as stock-market shells to take risky businesses public depends on funding sources known as PIPEs – private investments in public equity.
A SPAC’s PIPE investors can see its proposed acquisition and buy-in before the deal is opened to the public.
However, SPACs are finding their PIPEs growing dry as past backers are overwhelmed by the sheer volume of new SPACs and their rising share prices.
“There’s a lot of indigestion,” one unnamed senior bank executive commented to the Financial Times. “The pendulum has swung to the point where if you’re in the market with a PIPE right now, it’s going to be really hard and painful,” the executive said.
SPACs have completed 117 deals this year but another 497 are going begging, according to data firm Refinitive.
Only a quarter of SPACs formed since 2019 have done deals, the FT reported. If a SPAC fails to merge with a company within two years of its market debut, the SPAC must return investors’ money, under federal regulations.
Cooling interest in SPACs, coupled with rising speculative prices among their possible acquisition targets, may send investors in search of higher quality and greater certainty, some analysts have said.
Only four SPACs went public during the first week of this month, compared to 41 in March and 28 in February, Refinitiv reported.
For SPACs already on the stock market, “the hope is that this is just a bump in the road… and… ultimately the deal gets done,” Ari Edelman, a partner at law firm Reed Smith, said to the FT.

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