Senator Warren to introduce SPAC bill to rein in investor losses, abuses

• Warren to introduce new bill based on SEC’s proposed March 2022 guidelines for SPACs

• SPAC Accountability Act of 2022 would codify SEC rules into law

US Senator Elizabeth Warren on Tuesday said she is planning to introduce a bill to crack down on the blank check companies, curbing the “proliferation of low-quality deals and poor due diligence, often resulting in huge losses for retail investors.”

The “SPAC Accountability Act of 2022” will be built on the US Security and Exchange Commission’s (SEC) proposed March 2022 guidelines for special purpose acquisition companies (SPAC), also known as blank check companies.

The Democratic lawmaker published a 26-page report on SPACs, based on the results of her investigation of high-profile shell company creators.

“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered. 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,” Warren said in a press release.

The bill proposes to incorporate the SEC’s expanded definitions of SPAC underwriters and close loopholes that enabled far-reaching projections.

SPACs are shell companies that raise funds through a public listing to acquire a private company and take it public, sidestepping the stiffer regulatory scrutiny of a traditional initial public offering (IPO).

If finalized, SEC’s proposed rules would primarily close current loopholes and would offer protections to SPAC investors similar to those they would receive during the IPO process.

Moreover, Warren’s bill would codify the changes into law.

The soon to be introduced act would also lock up SPAC sponsors for longer, preventing them from cashing out before the merged company can generate the projected profits.

The bill would also increase the disclosures required in relation to the targeted takeover.

Picture Credit: FT

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