A top securities regulator warned about the surge in fundraising by blank-check companies known as special-purpose acquisition companies, the Wall Street Journal reported. Securities and Exchange Commission official John Coates yesterday said that there are “some significant and yet undiscovered issues” with SPACs, which allow private companies to go public with a structure that offers outsize potential rewards to backers while bypassing some safeguards of a traditional initial public offering. Those issues are “not something that’s going to stop them by any means, but they are relatively as yet incompletely worked through mechanisms, despite the fact they have been around for a while,” said Mr. Coates, who is acting director of the SEC’s Corporation Finance division. SPACs are shell companies that list on a stock exchange to merge with a private firm and take it public. The private company then gets the SPAC’s place in the stock market. SPACs have become hot investments for everyone from hedge funds to individual investors. Well-known SPAC creators include investors such as Bill Foley, former chief executive officer of Fidelity National Financial Inc., and former Citigroup Inc. executive Michael Klein. Star athletes and celebrities have also gotten into the SPAC game. Basketball icon Shaquille O’Neal, tennis star Serena Williams and skateboard legend Tony Hawk are all involved with SPACs. The surge in SPAC deals has drawn the attention of regulators. Mr. Coates didn’t detail his concerns with SPACs, but other officials have said in recent weeks that the deals raise unique investor-protection worries. For instance, the private companies that merge with SPACs, forming a new entity listed on a stock exchange, are often younger firms forced to quickly adopt stricter regulatory, accounting and governance systems that public companies must use, the SEC’s chief accountant, Paul Munter, said in a speech last week.
