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SEC Issues Investor Alert on SPACs

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Ever been enticed to buy a product or service after seeing a celebrity endorsement? Maybe so, but beware of celebrities endorsing investments, especially SPACs. They aren’t always as promising as they seem.

What are SPACs?

This month, the Securities and Exchange Commission (SEC) issued an Investor Alert regarding special purpose acquisition companies, more commonly referred to as SPACs. According to Investopedia, SPAC refers to “a company with no commercial operations that is formed strictly to raise capital through an initial public offering for the purpose of acquiring an existing company.”

Oftentimes, SPACs are called “blank check companies” because investors are essentially investing in the SPAC with little to no knowledge about the deals the SPAC will decide to pursue. This is where celebrity endorsements come into play.

Celebrities & Influencers

As we know, many celebrities are willing and able to take advantage of their fame in exchange for money. Plenty of companies often depend on celebrity endorsements to garner attention for particular products or services. We also see “influencers” on social media taking advantage of their ability to grab attention by endorsing products and services that are loosely tied to their “brand.” Companies that use celebrities or influencers pay them to promote their products and services on social media, television, streaming services, radio shows, podcasts, and other popular methods of communication and entertainment.

The SEC, however, has warned investors about this issue when it comes to SPACs. “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,” according to the recent Investor Alert.

We have seen this quite often, especially within certain industries. One industry we have seen using celebrity endorsements includes the precious metals industry. Many companies utilize paid endorsements by celebrities to push their faulty products and services onto unsuspecting investors. This, in turn, leads to investors being stuck in an investment that they do not understand and/or may not be able to sell without incurring significant losses.

SEC Guidance

The SEC has encouraged investors to fully research the product or services being offered before deciding to invest in a particular SPAC. Additionally, the SEC advises investors not to be enticed by celebrity endorsements for these products.

Investors can also use the investor.gov search tool as one of their investing resources. The SEC also advises investors to complete due diligence and weigh the costs and benefits of SPACs before making an investment.

In addition to these SEC resources, Vernon Litigation Group offers various securities litigation and investor representation services, including breach of fiduciary duty, investment fraud, EB-5 due diligence, FINRA arbitration, and others. Call us today at (239) 319-4434 for a confidential, no-cost consultation.