Firms & Funds

Senators focus on SPAC titans

Among those who are targeted include Social Capital's Chamath Palihapitiya, who was asked in a letter about his relationships to or with acquired companies and the compensation received at every level of their SPAC deals.

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A quartet of Democratic senators is ratcheting up the pressure on blank-check companies, demanding that some of the most successful SPAC organizers explain how they’ve made their money, and why.

“We are concerned about the misaligned incentives between SPACs’ creators and early investors on the one hand, and retail investors on the other,” senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio, Tina Smith of Minnesota and Chris Van Holen of Maryland said in six separate form letters dated September 22.

The letters are addressed to former Citgroup executive Michael Klein, transportation SPAC VectoIQ’s managing partner Stephen Girsky, casino-and-restaurant magnate Tilman Fertitta, DiamondHead Holdings’ chief executive and chairman David Hamamoto, space race SPAC executive Howard Lutnick of Cantor, Fitzgerald, and Social Capital co-founder and chief executive Chamath Palihapitiya.

Each letter asks eight multi-part questions. Questions include asking the recipients to describe their relationships to and with recent SPACs, their relationships to or with acquired companies and the compensation they received at every level of their SPAC deals.

Spotlight to glare

Special purpose acquisition companies, having basked in the markets’ spotlight for nearly half a decade, now find themselves under the harsh glare of regulators and politicians alike. SEC chairman Gary Gensler has made SPAC disclosures a centerpiece of his reform agenda.

The senators’ letters echo the concerns that Gensler says he has about the blank-check companies: Namely, that they make the rich richer, while retail investors are left holding the bag.

“Between January 19, 2019 and January 22, 2021,” the senators say in their open letters, “the average SPAC sponsor saw returns of 958 percent. The average investor that sold its stock and warrants right before a merger averaged a 40 percent return.”

The offer to weigh in is not one SPAC executives can easily refuse: Brown chairs the Senate Banking Committee, Warren chairs the Senate Finance Committee’s subcommittee on fiscal responsibility, Smith sits on the Senate Banking’s subcommittee on securities, insurance and investment and Van Hollen chairs the Senate Appropriations’ subcommittee on financial services.

This article first appeared in affiliate publication Regulatory Compliance Watch