SEC wants SPAC mania to remain dead

The speculative bonanza in special-purpose acquisition companies, better known as SPACs, appears to be dead. Gary Gensler wants to make sure it doesn't come back to life.

- Paul Kiernan

The Securities and Exchange Commission, which Gensler chairs, voted 3-2 Wednesday to adopt rules that seek to make it clearer to SPAC investors if they are getting araw bargain. Once the rules take effect in about five months, according to lawyers familiar with the deals, they will likely drive another nail into the coffin of a recent Wall Street fad fueled by market froth and regulatory arbitrage.

Also called a blank-check company, a SPAC is a shell firm that lists publicly with the sole intent of merging with a private company to take it public. After regulators approve the deal, the company going public replaces the SPAC in the stock market.

"Just because a company uses an alternative method to go public does not mean its investors are any less deserving of time-tested investor protections," Gensler said Wednesday.

Voting against the SEC rule were Republican SEC commissioners Hester Peirce and Mark Uyeda, who accused their colleagues of seeking to regulate away a fundraising model that some companies find useful.

The American Securities Association, which represents small and midsize financial firms, criticized the SEC rules. "They will chill participation in the SPAC market and reduce the ability of private companies to access public capital markets," ASA President Chris Iacovella said.

More than 860 SPACs raised $246 billion in 2020 and 2021, according to the data service SPACInsider, a period that also saw the rise of meme stocks and a cryptocurrency bubble. The blank-check entities bought companies with ideas ranging from flying taxis to small space rockets, essentially allowing them to sell stock to individual investors with few of the disclosures that accompany a traditional initial public offering.