Analysis

Gary Gensler's comments on SPACs

, Crowdfund insider

Gary Gensler, the Chairman of the SEC, testified in front of the House Subcommittee on Financial Services and General Government, part of the Appropriations Committee, where he presented the litany of challenges his agency faces including emerging Fintech issues.

Regarding SPACs, Gensler said the SEC has 700 S-1 filings year-to-date. Gensler said this surge of SPACs has raised policy questions as to whether investors are being protected and are retail investors receiving the information they need. He questioned whether, or not, SPACs fit into the SEC’s mission of a fair and orderly market.

His statements were, “It could be the case that SPACs are less efficient than traditional IPOs. One recent study shows that SPAC sponsors generate significant dilution and costs. SPAC sponsors generally receive 20 percent of shares as a “promote.” The first-stage investors can redeem when they find the target, leaving the non-redeeming and later investors to bear the brunt of that dilution. In addition, financial advisors are paid fees for the first-stage blank-check IPO, for the PIPEs, and for the merger with the target. Further, it’s often the case that the investors in these PIPEs are buying at a discount to a post-target IPO price. It may be that the retail public is bearing much of these costs.”

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