U.S. Sen. Elizabeth Warren (D-MA) is detailing her 26-page report examining special purpose acquisition companies (SPACs) while advocating greater oversight of the publicly traded shell companies.
In September 2021, Warren and a group of colleagues forwarded correspondence to six creators of prominent SPACs to address concerns regarding abuses by SPAC creators and operators – particularly insiders taking advantage of legislative and regulatory gaps at the expense of ordinary investors.
In November 2021, Warren requested the Securities and Exchange Commission (SEC) conduct a review stemming from reports of potential securities fraud involving Digital World Acquisition Corp.
“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered,” Warren said. “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.”
According to Warren’s report, SPAC sponsors’ incentives and outcomes do not align with retail investors, resulting in deals that negatively impact investors; financial institutions profit off SPACs through hidden fees outstripping those of a traditional IPO (initial public offering); SPACs incentivize inadequate and fraudulent disclosures; and further regulation and federal legislation is needed to protect retail investors from the impact of SPACs.
Warren plans to introduce the SPAC Accountability Act of 2022 to expand the SEC’s March 2022 proposed guidelines for SPACs by organizing definitions of SPAC underwriters into law and closing loopholes SPACs have exploited to make projections.