The headquarters of the United States Securities and Exchange Commission (SEC) is on display in Washington, DC, January 28, 2021.
Saul Loeb | AFP | Getty Images
The Securities and Exchange Commission issued a warning on Wednesday against special acquisition companies backed by celebrities, urging investors to think twice before jumping in.
“Celebrity involvement in a SPAC does not mean that investment in a particular SPAC or SPACs is generally appropriate for all investors,” the SEC said in an investor warning posted on its website.
Celebrities, like anyone else, may be tempted to take part in a risky investment or may be more able to bear the risk of loss. It is never a good idea to invest in an SPAC just because a celebrity sponsors or invests in it or says it is a good investment, “the agency said.
The explosive popularity in the SPAC market has attracted a slew of athletes and other famous figures to jump on the cart. NBA star Shaquille O’Neal is a consultant at Forest Road Acquisition Corp, which announced a merger with fitness company BeachBody last month. Musician Ciara Wilson is director of Bright Lights Acquisition, which focuses on a company in the media and entertainment industry. Former MLB star Alex Rodriguez also recently launched his own SPAC.
SPACs raise capital on an IPO and use the money to merge with a private company and make it public, usually within two years. The issuance continued in record time this year, raising more than $ 77 billion in the first quarter of 2021 alone, already competing with the capital from full-year 2020, according to SPAC Research.
The SEC said investors should do their own research before investing in SPACs. These deals are considered riskier than traditional IPOs as they often do not involve any operations.
Never invest in a SPAC solely on the basis of a celebrity’s involvement or solely on the basis of other information you receive through social media, investment newsletters, online advertisements, email, investment research websites, internet chat rooms, direct mail, newspapers, magazines television or radio, ”the SEC said in the warning.
CNBC’s Jim Cramer previously raised a red flag on these famous SPACs, saying they “feel like an inside joke to the super rich.”
“These newer SPACs increasingly feel like an inside joke for the super rich and a way for celebrities to monetize their reputation,” he said. Believe me you don’t want to invest in someone else’s joke so please please please the way to avoid getting hurt [is to] do homework on the people and if there are businesses before you get close to these things. “