SEC Official Sees ‘Significant Issues’ With Blank-Check Companies

A leading securities regulator issued a warning on the rise of fundraising through blank check companies, The Wall Street Journal reported Wednesday (April 7).

Speaking at a legal conference Wednesday, SEC official John Coates said there are “some significant and yet undiscovered issues” involving special-purpose acquisition companies (SPACs), otherwise known as blank-check companies.

Coates said these issues with SPACs are “not something that’s going to stop them by any means, but they are relatively as yet incompletely worked through mechanisms, despite the fact they have been around for a while.”

SPACs are private companies formed only to help take other companies public. They’ve surged in popularity in the past year, with a cumulative value in the neighborhood of $170 billion.

“Their current surge is bringing the level of attention by many more participants in the market than previously had been involved, and that is turning up some questions that have to be thought through more carefully,” said Coates, who made his remarks at a conference sponsored by the Practising Law Institute.

The official’s comments mark the third time in less than a month that the SEC has sounded the alarm over SPACs.

On March 10, the commission issued an “investor alert” dealing specifically with SPACs touted by celebrities, warning that “celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors.”

Several celebrities have promoted SPACs recently, including Shaquille O’Neal, Serena Williams and legendary skateboarder Tony Hawk.

And on March 31, Paul Munter, the SEC’s acting chief accountant, issued this warning: “We encourage stakeholders to consider the risks, complexities and challenges related to SPAC mergers, including careful consideration of whether the target company has a clear, comprehensive plan to be prepared to be a public company.”

It’s not clear yet what kind of impact these warnings have had. According to the Journal, 301 SPACs have been created in 2021 so far, generating roughly $98 billion. That’s compared to $83 billion from 248 deals in 2020.