spac

How SPACs work

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If the SPAC set-up appears to be a situation ripe for abuse it once was. Back in the 1980s, a great deal of fraud surrounded these blank check companies, since they were then understood. Frequently these firms either absconded with investors’ money or engaged in overvalued insider deals that left most investors with a bagful of nothing.

Since then, however, the metamorphosis from blank check company to SPAC has entailed more than only a title change. The SEC has tightened regulations and procedures for these ventures.

Now, by way of instance, a SPAC usually must place the investor cash in a trust or bank account to keep it stable before the target company is publicly announced. At that point, if investors do not like the appearance of this deal, they should be able to recover their funds.

SPACs also have to register with the SEC, even if they are relatively modest (which in the IPO world means funds under $1 million).

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