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I wonder if any of the ringleaders of the SPAC boom and bust will ever face charges. Close to a thousand companies took the SPAC route to go public between 2019

by paxys 3y ago

I wonder if any of the ringleaders of the SPAC boom and bust will ever face charges. Close to a thousand companies took the SPAC route to go public between 2019-2022, with 613 in 2021 alone. As of early 2023 the average returns for SPAC investors are -62% (https://yalejreg.com/bulletin/was-the-spac-crash-predictable/ https://yalejreg.com/bulletin/was-the-spac-crash-predictable...). Meanwhile the financiers and founders/VCs/other insiders made off with billions, all without the pesky SEC getting in the way.

dvt 3y ago
> I wonder if any of the ringleaders of the SPAC boom and bust will ever face charges. Charges for what? SPACs are essentially a legal (operative word) pump-and-dump. We need legislation to fix this. But a lot of government insiders made off with millions as well, so is there incentive there?
- paxys 3y ago
  SPACs as a concept may be legal but there's a very large gray area around how individual ones were implemented/sold. There are already dozens of SPAC lawsuits making their way through various courts, and I don't think a larger federal-level investigation by the SEC or DoJ can just be written off as "SPACs are legal". IPOs are legal as well, but if a single investment bank was promising companies that it would use every trick in the book to pump and dump their worthless shares on retail investors, and did so hundreds of times, you can be pretty sure the feds would come down on them hard.
  - Zigurd 3y ago
    This is the key insight. You don't have to commit a gross violation, like using a patently illegal structure. But if all these SPAC offerings failed in a similar way, with the same parties repeatedly profiting from the same kinds of duff deals, with the same kinds of bag holders being sold the same line, there is a good chance they all skirted the law in similar ways.
chollida1 3y ago
What specific charges do you think they are guilty of? Chamath Palihapitiya would be the main culprit of dumping garbage on people that anyone would know of and I can't really find anything he'd be guilty of. You're allowed to be a cheerleader for your company. You're allowed to bring a business combination to the market and let people make up their mind if they want to be a part of it or get their money back from the SPAC. You're allowed to sell your shares when your lock up ends You're allowed to do this multiple times if people will continue to fund you. His SPAC companes are a whose who of failed companies. - Virgin Galactic Holdings - OpenDoor Technologies - Clover Health - SoFi Technologies and one failed SPAC Social Capital Hedosophia IV Maybe Chamath would have been better off creating a hedge fund that only went short
- minwcnt5 3y ago
  I wouldn't call SoFi a failed company (yet). They're still at roughly 10B valuation, same as what they IPOed at. That's actually pretty remarkable in this economy for a company that's still in pre-profit growth mode. OpenDoor isn't that bad either, they're down 60% from IPO, but a real estate company being able to retain that much value with the massive hike in interest rates also seems pretty good (competitors have done much worse, e.g. Compass and Redfin).
  - FireBeyond 3y ago
    > that's still in pre-profit growth mode. SoFi started operations in early 2011. How long are they planning to be in "pre-profit growth mode"?
- throwawaysugar 3y ago
  > You're allowed to be a cheerleader for your company. You're not really allowed to knowingly cheer for a company you know to be 100% vaporware. That's fraud.
  - lazide 3y ago
    A surprising number of very smart people become incredibly dumb on the stand if/when it blows up. Being too dumb to understand it couldn’t actually work is a defense. Part of why it’s usually so important for them to not have anyone telling them so in writing inside their companies.

by paxys 3y ago

dvt 3y ago

> I wonder if any of the ringleaders of the SPAC boom and bust will ever face charges. Charges for what? SPACs are essentially a legal (operative word) pump-and-dump. We need legislation to fix this. But a lot of government insiders made off with millions as well, so is there incentive there?

paxys 3y ago
SPACs as a concept may be legal but there's a very large gray area around how individual ones were implemented/sold. There are already dozens of SPAC lawsuits making their way through various courts, and I don't think a larger federal-level investigation by the SEC or DoJ can just be written off as "SPACs are legal". IPOs are legal as well, but if a single investment bank was promising companies that it would use every trick in the book to pump and dump their worthless shares on retail investors, and did so hundreds of times, you can be pretty sure the feds would come down on them hard.
- Zigurd 3y ago
  This is the key insight. You don't have to commit a gross violation, like using a patently illegal structure. But if all these SPAC offerings failed in a similar way, with the same parties repeatedly profiting from the same kinds of duff deals, with the same kinds of bag holders being sold the same line, there is a good chance they all skirted the law in similar ways.

chollida1 3y ago

What specific charges do you think they are guilty of? Chamath Palihapitiya would be the main culprit of dumping garbage on people that anyone would know of and I can't really find anything he'd be guilty of. You're allowed to be a cheerleader for your company. You're allowed to bring a business combination to the market and let people make up their mind if they want to be a part of it or get their money back from the SPAC. You're allowed to sell your shares when your lock up ends You're allowed to do this multiple times if people will continue to fund you. His SPAC companes are a whose who of failed companies. - Virgin Galactic Holdings - OpenDoor Technologies - Clover Health - SoFi Technologies and one failed SPAC Social Capital Hedosophia IV Maybe Chamath would have been better off creating a hedge fund that only went short

minwcnt5 3y ago
I wouldn't call SoFi a failed company (yet). They're still at roughly 10B valuation, same as what they IPOed at. That's actually pretty remarkable in this economy for a company that's still in pre-profit growth mode. OpenDoor isn't that bad either, they're down 60% from IPO, but a real estate company being able to retain that much value with the massive hike in interest rates also seems pretty good (competitors have done much worse, e.g. Compass and Redfin).
- FireBeyond 3y ago
  > that's still in pre-profit growth mode. SoFi started operations in early 2011. How long are they planning to be in "pre-profit growth mode"?
throwawaysugar 3y ago
> You're allowed to be a cheerleader for your company. You're not really allowed to knowingly cheer for a company you know to be 100% vaporware. That's fraud.
- lazide 3y ago
  A surprising number of very smart people become incredibly dumb on the stand if/when it blows up. Being too dumb to understand it couldn’t actually work is a defense. Part of why it’s usually so important for them to not have anyone telling them so in writing inside their companies.