The headquarters of the US Securities and Exchange Commission (SEC) will be seen on January 28, 2021 in Washington, DC.
Saul Loeb | AFP | Getty Images
The Securities and Exchange Commission on Wednesday issued a warning against companies for acquiring special purposes backed by celebrities, urging investors to think twice before stepping in.
“Known involvement in a SPAC does not mean that the investment in a particular SPAC or SPAC is generally suitable for all investors,” the SEC said in an investor warning posted on its website.
“Celebrities, like anyone else, can be lured into a risky investment or better sustain the risk of loss. It’s never a good idea to invest in a SPAC just because someone famously sponsors , ‘invest or not say it’s a good investment,’ the agency said.
The explosive popularity in the SPAC market has attracted a lot of athletes and other famous figures to jump on the bandwagon. NBA star Shaquille O’Neal serves as an advisor to Forest Road Acquisition Corp., which last month announced a three-way merger with fitness company BeachBody. Musician Ciara Wilson is a director of Bright Lights Acquisition, which focuses on a company in the media and entertainment industry. Former MLB star Alex Rodriguez also recently unveiled his own SPAC.
SPACs raise capital in an initial public offering and use the cash to merge with a private company and make it public, usually within two years. The release continued at its record pace this year, with more than $ 77 billion raised just in the first quarter of 2021, which according to SPAC Research had already competed against the capital by 2020.
The SEC said investors should do their own research before investing in SPACs. These transactions are considered riskier than traditional IPOs, as there are often no operations.
Never invest in a SPAC that is based solely on the involvement of a famous person or based solely on other information you receive via social media, investment newsletters, online advertisements, email, investment research sites, internet chat rooms, direct mail, newspapers , magazines, television or radio, ”the SEC said in the warning.
CNBC’s Jim Cramer has previously hoisted a red flag on these well-known SPACs, saying they “feel like an intrusion for the super-rich.”
“These newer SPACs are increasingly feeling a joke for the super-rich and a way for celebrities to earn their reputation,” he said. “Believe me, you do not want to invest in someone else’s inside joke, so please, please, the way to avoid getting hurt [is to] do homework to the people and if there are businesses before going near these things. ‘