SEC Investigating Wall Street's SPAC Frenzy: Report

The U.S. Securities and Exchange Commission (SEC) has reportedly contacted Wall Street banks to request more information on their work involving special purpose acquisition companies (SPAC), according to Reuters.

The letter sent from the SEC is seeking to find out information from Wall Street banks on a voluntary basis. Hence, the initial inquiry doesn’t have a level of a formal investigative demand, although letters were sent from the SEC’s enforcement division, signaling a potential investigation down the road.

The regulators seek information on fees, volumes, and what controls banks have in place to monitor the deals internally, as well as compliance, reporting and internal controls mechanisms.

“It seems that everybody is getting calls about these SPACs. The SPACs are knocking on their doors. When there’s a market like that, of course you just have to be concerned with the long-run return potential,” said Dana D’Auria, co-CIO at Envestnet PMC.

Earlier this month, the SEC issued a warning to investors against buying into SPACs based on celebrity endorsements, while it added it is watching closely the SPAC activity.

“Middle-market groups who used to not have the level of sophistication to even orchestrate an IPO want to talk about SPAC IPOs,” said Anthony DeCandido, partner at RSM LLP.

“Because there are still so many distressed companies out there that face liquidity issues from Covid, there will still be this extended period of buying opportunity for those groups who have capital to put into the market,” he added.

Earlier this month, the SEC issued a warning to investors against buying into SPACs based on celebrity endorsements, while it added it is watching closely the SPAC activity.

According to the Refinitiv data, SPACs have attracted a record $170 billion this year to already exceed $157 billion recorded last year.

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