Senator Warren’s SPAC Bill Aims to Rein in Losses, Abuses

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U.S. Sen. Elizabeth Warren (D-Mass.) is planning to introduce a bill aimed at curbing abuses and losses in deals surrounding special purpose acquisition companies (SPACs) that builds on March guidelines from the Security and Exchange Commission (SEC).

The SPAC Accountability Act of 2022 builds springs from Warren’s 26-page report on SPACs, also known as blank check companies. The report is based on the results of her investigation of high-profile SPAC creators.

“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered. This industry is rife with fraud, self-dealing, and inflated fees, and the SEC and Congress should continue to act to crack down on these abuses,” Warren said in a Tuesday (May 31) press release announcing the report.

The bill proposes to incorporate the SEC’s expanded definitions of SPAC underwriters and close loopholes that enabled far-reaching projections.

See also: SPAC Bubble Ready to Burst, Market Researcher Audit Analytics Says

According to Audit Analytics, at least 25 firms merging with SPACs between 2020 and 2021 have released “so-called going-concern warnings,” which means that a company’s auditor has “substantial doubt” that a firm can survive for the following year.

Warren’s proposed legislation would increase the legal liability for numerous stakeholders involved in SPAC deals while also making investor disclosures more transparent. In addition, the bill calls for locking in early backers of SPACs for a longer time period, per the release.

In the report, Warren also details the investigation she launched last year that found investors were shortchanged and more regulations were necessary.

Read more: Goldman Sachs Pauses New SPAC Offerings Amid Regulatory Pressures

Goldman Sachs has paused new SPAC offerings and stopped working with many of the SPACs it helped to take public in the past. The SEC has proposed increased transparency and refining the rules to be more like those of regular initial public offerings (IPOs).

The guidelines would require banks associated with SPACs to stay on board post-merger and would also hold banks liable for misstatements related to the merger.