Democratic US Senator Elizabeth Warren is planning a bill to crack down on the special purpose acquisition company, or SPAC, industry after a “proliferation” of bad deals that have often resulted in huge losses for investors, according to Reuters.
The SPAC Accountability Act of 2022 builds from Warren’s 26-page report on SPACs, also known as blank check companies. The report is based on the results of her investigation of high-profile SPAC 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 Tuesday (May 31) press release announcing the report.
The bill proposes to incorporate the SEC’s expanded definitions of SPAC underwriters and close loopholes that enabled far-reaching projections.
According to Audit Analytics, at least 25 firms merging with SPACs between 2020 and 2021 have released “so-called going-concern warnings,” which means that a company’s auditor has “substantial doubt” that a firm can survive for the following year.
Warren’s proposed legislation would increase the legal liability for numerous stakeholders involved in SPAC deals while also making investor disclosures more transparent. In addition, the bill calls for locking in early backers of SPACs for a longer time period, per the release.
In the report, Warren also details the investigation she launched last year that found investors were shortchanged and more regulations were necessary.
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