SEC Opens Inquiries Into SPAC Process: Report

A new report says the U.S. Securities and Exchange Commission is asking for more information on the SPAC process.

What Happened: The SEC has asked for information from Wall Street banks on their SPAC processes, sources told Reuters.

One source said the information was asked for voluntarily and did not rise to the level of a formal investigative demand. Another source told Reuters the letters were sent by the SEC’s enforcement division, which means a formal investigation could be coming soon.

Information requested from the banks centered on the risks of SPACs. Items like fees, compliance, reporting and internal controls were requested by the SEC, the sources said.

The SEC did not respond to Reuters on the rumor of the inquiries.

Related Link: SEC Cautions On Celebrity SPACs, Considers Adding To Disclosures

Why It’s Important: SPACs were the hot story in 2020 and saw surging valuations on deal announcements.

The blank check merger is a popular way for private companies to go public. SPACs offer an easier path to go public and come with less regulatory scrutiny than a traditional IPO. SPACs can bring companies public quicker than a traditional IPO and also allow a private company the ability to provide forward guidance several years out.

A huge oversupply of SPACs has taken place in 2021. Over $30.8 billion has been raised by SPACs in the month of March 2021 alone, according to Julian Klymochko. That's a significant increase to the $980 million from SPAC IPOs in March 2020.

There are currently over 400 SPACs searching for an acquisition target.