SPACs Are All the Rage, But Investors Could be Left Burned – Beware!

Chicago-based Stoltmann Law Offices is investigating Special Purpose Acquisition Companies (SPACs). All the rage on Wall Street, “SPACs” are companies created to acquire or fund other firms by sidestepping much of the due diligence paperwork of traditional initial public offerings. These “blank check” entities can present problems for investors, however.

Both FINRA, the U.S. securities industry regulator, and the Securities and Exchange Commission (SEC) are probing SPACs. Earlier this year, the SEC began to focus on SPACs.  The agency “wanted information on SPAC deal fees, volumes, and what controls banks have in place to police the deals internally,” according to Reuters.

SPACs have surged globally to a more than $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed. Although SPACs have become popular with hedge funds and companies quickly raising capital, investors often have no idea what SPAC operators will buy.

According to The New York Times, “news that Donald Trump was bankrolling a new media venture through a SPAC deal sent shares in the blank-check fund soaring some 350 percent. But at least one of the SPAC’s backers, a major hedge fund, pulled out over the Trump connection, and the question now is whether others will follow suit — or chase potential profit.”

In July, the SEC announced charges against “special purpose acquisition corporation Stable Road Acquisition Company, its sponsor SRC-NI, its CEO Brian Kabot, the SPAC’s proposed merger target Momentus Inc., and Momentus’s founder and former CEO Mikhail Kokorich for misleading claims about Momentus’s technology and about national security risks associated with Kokorich. The SEC’s litigation is proceeding against Kokorich, against whom the SEC filed a complaint in the U.S. District Court for the District of Columbia.”

“Kokorich and Momentus, an early-stage space transportation company,” according to the SEC “repeatedly told investors that it had successfully tested its propulsion technology in space when, in fact, the company’s only in-space test had failed to achieve its primary mission objectives or demonstrate the technology’s commercial viability. The order finds that Momentus and Kokorich also misrepresented the extent to which national security concerns involving Kokorich undermined Momentus’s ability to secure required governmental licenses essential to its operations.” Since disclosures on SPAC offerings are often incomplete and opaque, FINRA has developed a list of questions investors should ask before investing in them.

If you invested in a SPAC based on the recommendation of your financial advisor and have lost money as a result, you could have a viable claim to pursue through Finra Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!