The frenzy over celebrity-endorsed investment vehicles known as SPACs has prompted the Securities and Exchange Commission to warn amateur investors not to turn fandom into a financial disaster. High-profile sponsors from NBA legend Shaquille O’Neal to tennis star Serena Williams to ex-Trump adviser Gary Cohn have loaned their star power to “special purpose acquisition companies”—which has regulators worried.
“Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss,” the SEC wrote in a statement. “It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.”
Once an obscure form of financial engineering, a SPAC is a shell company that trades on a stock exchange, with the intent to merge with or acquire another company. The gist: a group of founders create a SPAC, take it public, and sell shares for the so-called “blank check company.” Using the investment money, the SPAC will look to merge or acquire another non-shell company within a certain time frame. If the SPAC finds a company within that time, its investors benefit. If it doesn’t, the SPAC dissolves and returns the money, minus expenses. Economist Lora Dimitrova has dubbed them “the poor man’s private equity.”
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