US SEC Warns Against Reckless Celebrity SPAC Investments Leading to Losses

Saul Loeb

[Asia Economy Reporter Yujin Cho] The U.S. securities authorities have issued a warning regarding the boom in investments in Special Purpose Acquisition Companies (SPACs) led by celebrities.

On the 10th (local time), the U.S. Securities and Exchange Commission (SEC) emphasized on its website that "it is not appropriate to decide to invest in a SPAC just because a celebrity is involved," adding that "celebrities themselves can also be misled into risky investments."

The SEC also warned against hastily investing in SPACs based solely on information from celebrity endorsements or through social media, investment newsletters, online advertisements, emails, investment research websites, internet chat sites, direct messages, newspapers, magazines, TV, or other sources.

The U.S. financial media CNBC reported that amid the SPAC investment boom spreading since last year, NBA star Shaquille O'Neal, former MLB player Alex Rodriguez, and singer Ciara have recently created or participated in SPACs.

The SEC stated that SPAC investments can be riskier than normal initial public offering (IPO) investments because investors themselves must directly examine the potential risks, including the financial status of the target company.

They warned that non-prime or marginal companies that have previously failed IPO attempts or do not meet normal IPO qualifications might exploit SPACs as a backdoor.

A representative example is the U.S. office-sharing company WeWork. After its IPO was canceled in 2019 due to governance and accounting fraud issues revealed during the IPO process, and facing a liquidity crunch leading to bankruptcy risk, WeWork is currently pursuing a backdoor listing through a merger with a SPAC linked to Bow Capital Management.

SPACs raise funds through public offerings and get listed on the stock market, then merge with an unlisted company within a set period (2 years). For unlisted companies, listing through a SPAC offers the advantage of reducing the listing procedures compared to a formal IPO. Due to increased market volatility caused by the COVID-19 pandemic last year, more companies seeking rapid listings have fueled the SPAC IPO craze.

According to SPAC Research, a U.S. SPAC information provider, the amount of funds raised by SPACs this year has already reached $77 billion (approximately 87.6 trillion KRW), approaching last year's annual total of $83.4 billion.

This content was produced with the assistance of AI translation services.