SEC boss Jay Clayton to take a deeper look at the blank-check company boom

November 19, 2020 

Wall Street’s top regulator wants to take a closer look at blank-check companies on his way out the door.

Securities and Exchange Commission Chairman Jay Clayton said Thursday that his agency is exploring how to improve disclosures for special purpose acquisition companies, or SPACs, that have become all the rage on Wall Street in 2020.

Widely seen as a way to take a company public without going through the more onerous and expensive IPO process, SPACs are pools of money that a sponsor takes public, attracts investors and then uses to acquire a private company, taking it public via the existing ticker symbol. Investors then watch their shares in the SPAC convert into an actual company.

A total of 59 SPACs went public in 2019, setting a modern record. In 2020 so far, 159 SPACs have hit the market, raising more than $66 billion in total capital.

Clayton, who announced Monday that he will leave the SEC at the end of the year, made it clear in an interview with CNBC that a market that size needs a deeper look from regulators since most SPACs are built to benefit the sponsor as opposed to the investor, and the current regulatory rules for disclosure of SPAC terms might not present the clarity required to protect the latter from the former.

“We’re looking at that, and looking at whether we should be issuing guidance or otherwise helping companies try to craft the disclosure,” Clayton said.

This is not the first time Clayton has voiced concern about how SPACs are constructed.

“One of the areas in the SPAC space I’m particularly focused on, and my colleagues are particularly focused on, is the incentives and compensation to the SPAC sponsors,” Clayton said in a Sept. 24 interview with CNBC.

Whether or not more transparency in who makes money first will curb the growth of SPACs remains to be seen, but even Clayton praised one aspect of the SPAC boom in comparison to the more widely criticized IPO process: more information for investors about future business performance and stock valuation.

“There’s more forward-looking information in the SPAC space,” Clayton said Thursday. “Maybe one thing we can learn from this is that there should be more forward-looking information in the IPO space”

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