FINRA Probes Broker-Dealers’ Activities Related to SPACs

Popular With Retail Investors, Shell Companies That Raise Capital Through Own IPOs Can Be Risky  

The Financial Industry Regulatory Authority (FINRA) has started a thorough examination of the activities of brokerage firms in relation to special purpose acquisition companies (SPACs). These shell companies raise funds through their own IPOs and have up to two years to select and acquire a private company that will go public via merger. They are popular among retail investors seeking to make money from private companies whose shares they otherwise wouldn’t be able to buy because they don’t satisfy certain wealth or income thresholds.

However, SPACs have come under increasing scrutiny from FINRA in the wake of their growing popularity, because of the risks and potential harm they can pose for retail investors. Our skilled SPAC investment attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm at are investigating claims of losses by investors whose brokerage firm unsuitably recommended a special purpose acquisition vehicle or did not fully apprise them of the risks involved. Contact SSEK Law Firm at (800) 259-9010 today 

SPAC Structure Can Leave Investors Vulnerable to Losses 

With a SPAC, the company sponsors are the ones who choose what entity to acquire, which can increase the risk of self-dealing. Shareholder dilution may be an issue because these sponsors usually own a 20% stake along with a warrant to buy more shares. SPACS are also known to charge multiple fees.  

In the event that there are too many investors in a SPAC, a capital shortfall may occur. There are a host of other risks as well. Unqualified managers may be in charge, a special purpose acquisition vehicle could go into liquidation, and there could end up being low profits or even no acquisition at all. 

FINRA To Target Specific Firms As Part of Examination

Although it won’t disclose which brokerage firms are part of its examination sweep, the self-regulatory organization (SRO) did announce that it will be looking at SPAC-related activates from July 2018 through September 2021, as well policies and procedures involving public offerings, suitability, due diligence, communications with customers, and product recommendations. 

It was less  than a month ago in September 2021 that Securities and Exchange Commission (SEC) chairman Gary Gensler told Congress that there will be new SPAC regulations. He stated his intention is to make sure that investors are given more information about the costs, fees, and any conflicts involving SPACs. 

The SEC released an Investor Alert in March 2021 cautioning investors about investing in a SPAC just because a celebrity or another famous person was a sponsor. It issued a revised Alert in May 2021 telling investors what they need to know about SPACs. 

What Should You Do if You Suffered Serious Losses in a SPAC?

 SPACs have yet to show a high success rate. Many of them have not ended up going public and the number of SPACs with positive returns is even lower.  If you are an investor that has suffered serious losses in a SPAC, contact SSEK Law Firm to request your free, no obligation case consultation with one of our knowledgeable SPAC attorneys. Call (800) 259-9010 today.

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