US SEC Targets SPACs... Investigates Lucid and Trump Companies

[Asia Economy Reporters Yujin Cho and Jaehee Kwon] The electric vehicle company Lucid and the 'Trump SPAC,' which had heated up the US stock market with the largest special purpose acquisition company (SPAC) merger deal in history, are both facing investigations by US regulatory authorities. This investigation is expected to mark the beginning of intensified scrutiny by authorities on SPAC merger companies, which have long been surrounded by bubble controversies.

According to major foreign media on the 6th (local time), Lucid announced that it was requested by the US Securities and Exchange Commission (SEC) on the 3rd to submit some documents prepared during the merger with Churchill Capital SPAC. Lucid stated, "We are not certain about the scope of the investigation, but it seems that the authorities have concerns about certain forecasts and statements made by the company during the merger process."

The investigation is expected to focus on the bubble controversy related to Lucid's revenue and production capacity forecasts. Lucid attracted attention as a strong competitor to Tesla, the number one player in the electric vehicle industry, and its stock price doubled purely on 'expectations.' Lucid, which was listed on Nasdaq on July 26, saw its stock price soar, and at one point its market capitalization surpassed that of Ford, one of the US Big Three automakers.

However, its performance is minimal. Lucid recorded a net loss of $524.4 million in the third quarter of this year, and its production target for next year for the only model currently on sale is only 20,000 units, indicating that it has not yet established a mass production system. Lucid has announced plans to increase production to 500,000 units within the next 10 years, but there are ongoing controversies that such forecasts are exaggerated beyond reality.

The Wall Street Journal (WSJ) evaluated that this investigation highlights concerns that some analyses of corporate value during the SPAC merger listing process, which has looser regulatory standards than traditional initial public offerings (IPOs), may be unrealistic.

Peter Rawlinson, CEO of Lucid (Photo by Reuters)

Previously, companies that went public through SPACs, including hydrogen electric truck manufacturer Nikola, Rose Stone, and Workhorse, have been or are being investigated by the SEC one after another. Nikola was fined $125 million by the SEC for fraud allegations related to vehicle development capabilities, and Nikola founder Trevor Milton was indicted for misleading investors. Competitor Rose Stone is also under investigation by the SEC and the US Department of Justice for allegations that its technology and pre-order volumes were exaggerated beyond reality.

The authorities' targets are not limited to electric vehicle companies. Digital World Acquisition Corp. (DWAC), a SPAC scheduled to merge with former President Trump's social media company Trump Media & Technology Group (TMTG), was also requested on the same day by the SEC and the Financial Industry Regulatory Authority (FINRA) to submit materials and information related to pre-merger transactions.

The WSJ reported that regulators are focusing their investigation on possible prior discussions between DWAC and former President Trump regarding the merger, which may constitute regulatory violations. FINRA requested information on transactions before the merger announcement, and the SEC reportedly demanded submission of documents exchanged between the two companies, identities of certain investors, and minutes of DWAC board meetings.

(Photo by Reuters)

A SPAC raises funds through a public offering and then merges with an unlisted company. For unlisted companies, merging with a SPAC offers the advantage of reducing the listing procedures compared to a formal IPO. However, SPACs have been criticized as a loophole used by non-qualified or marginal companies for backdoor listings, and for the possibility that valuations based on future performance may be inflated beyond reality.

It is expected that the large-scale investigation into SPAC merger companies will accelerate the preparation of SPAC regulations at the level of authorities and Congress. Earlier, the SEC indicated that it is closely monitoring whether SPAC merger companies undergo strict disclosure procedures equivalent to IPOs when entering the stock market, suggesting the possibility of regulatory proposals.

SEC Chairman Gary Gensler also pointed out in July, when space company Momentus was indicted on fraud charges while pursuing a SPAC listing, that "SPAC merger companies conducting inadequate due diligence to inflate valuations and mislead investors demonstrate the inherent risks of SPAC transactions."

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