Democratic U.S. Senator Elizabeth Warren is planning a bill to bound on the special purpose acquisition company, industry. This plan is after a proliferation of bad deals that have often resulted in huge losses for investors. Warren’s forthcoming SPAC Accountability Act of 2022 would increase the legal liability. Which too for a range of parties involved in such deals.
As the lawmakers are focused on the midterm elections, the Warren’s bill may struggle to achieve traction this year. Because this might increase the pressure on the industry. Already, there are new curbs from the U.S. Securities and Exchange Commission. SPACs are shell companies that raise funds through a public listing. Their goal is to accumulate a private company and taking it public.
The targets are allowed during this process to sidestep the stiffer regulatory scrutiny of a regular initial public offering (IPO). Warren also detailed an investigation that she began last year on SPACs and their backers. She stated that this investigation found that Wall Street insiders have used SPACs as their own personal piggy banks. This industry is rife with fraud, self-dealing and inflated fees. The SEC and Congress should still act to confine on these abuses.
Investment banks have raked in billions of dollars feeding the frenzy for SPAC deals. SEC rules proposed in March would largely close current loopholes. This closure is finished by offering SPAC investors protections. By codifying its changes into law, Warren’s bill would rest on the SEC’s proposal. This might lock-up SPAC sponsors. Hence, they’ll be prevented from cashing out before the merged company can produce any of the projected profits.