The headquarters of the US Securities and Exchange Commission is located in Washington, DC on January 28, 2021.
Saul Loeb | AFP | Getty Images
The Securities and Exchange Commission warned Wednesday of celebrity-backed special-purpose acquisition companies and urged investors to think twice before getting started.
“Celebrity involvement in a SPAC does not mean that investing in any particular SPAC or SPAC in general is appropriate for all investors,” the SEC said in an investor notification posted on its website.
“Celebrities, like anyone else, can be tricked into participating in a risky investment or they can better maintain the risk of loss. It is never a good idea to invest in a SPAC just because someone is, or says, a famous sponsor or investor in that SPAC It’s a good investment, “said the agency.
The explosive popularity in the SPAC market has drawn a slew of athletes and other celebrities to jump on the bandwagon. NBA star Shaquille O’Neal is serving as an advisor to Forest Road Acquisition Corp., which announced a three-way merger with fitness company BeachBody last month. Musician Ciara Wilson is the director of Bright Lights Acquisition, aimed at 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 partner with a private company and get it public, usually within two years. According to SPAC Research, the issue continued this year with more than $ 77 billion raised in the first quarter of 2021 alone, competing with the capital as early as 2020 as a whole.
The SEC said investors should conduct their own research before investing in SPACs. These trades are considered riskier than traditional IPOs as there are often no operations involved.
“Never invest in a SPAC that is based solely on the participation of a celebrity or based solely on other information shared through social media, investment newsletters, online advertising, 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 hoisted a red flag on these celebrity SPACs, saying they “feel like an inside joke for the super-rich”.
“These newer SPACs are increasingly feeling like an inside joke for the super-rich and a way for celebrities to monetize their reputations,” he said. “Believe me, you don’t want to invest in someone else’s inside joke, so please, please, please to keep from getting hurt [is to] Do homework with people and if there is business before approaching these things. “