WASHINGTON – Some special-purpose procurement companies have incorrectly declared warrants sold or given to investors, security regulators said Monday, intensifying investigations into the popular vehicles.
Warrants are a standard part of the way SPACs raise money, including from hedge funds and other private investors. The potential return for early investors in SPACs is large as the company’s shares rise due to the various features of the structure, including warrants that give some investors the right to buy more shares at a predetermined price in the future.
SPACs are white check companies that raise money from the public for the purpose of buying a business and making it public. When the transaction takes place, the target company takes the SPAC’s place on a stock exchange in a transaction that looks like an initial public offering. SPACs have grown over the past year as many traders quickly began to take advantage of investors’ thirst for the structure.
SPACs usually classified the warrants on their balance sheet as equity. Under certain circumstances, it should be classified as liabilities, which requires the company to regularly offset changes in the warrant value, the Securities and Exchange Commission said in a statement released late Monday. One impact of the SEC’s announcement: Affected SPACs will have to recover their financial results if the fluctuations are deemed material, the SEC said.
The Wall Street watchdog began to examine the market more closely as SPACs increased this year and raised nearly $ 100 billion. A senior SEC official said last week that SPACs have no regulatory advantages over the standard public offering, indicating that the agency will investigate the shortcomings as they do IPOs.