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US SEC warns against investing in SPACs based solely on celebrity backing

Reuters
US SEC warns against investing in SPACs based solely on celebrity backing

TRADING. A trader watches his chart while working on the floor of the New York Stock Exchange, July 8, 2014.

Photo by Brendan McDermid/Reuters

'It is never a good idea to invest in a [special purpose acquisition company] just because someone famous sponsors or invests in it or says it is a good investment,' says the US SEC

The US Securities and Exchange Commission (SEC) cautioned investors on Wednesday, March 10, about buying shares of so-called special purpose acquisition companies only because they are backed by celebrities, including movie stars and athletes.

Special purpose acquisition companies, or SPACs, are shell companies which raise funds to acquire a private entity with the aim of taking it public, allowing such companies to sidestep a traditional initial public offering to enter public markets.

The SEC said a celebrity endorsement of a SPAC does not necessarily make it a safe bet for investors. Celebrities, like others, can be enticed into a risky investment, but they may be better able to sustain the risk of losses, the securities regulator added.

“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the SEC said.

The recent SPAC frenzy has attracted the attention of a number of mainstream celebrity figures such as rap star Jay-Z, tennis legend Serena Williams, and National Basketball Association Hall of Famer Shaquille O’Neal who have either sponsored their own blank-check firms or joined the boards of other SPACs. – Rappler.com