U.S. Sen. Warren Crafting Bill To Crack Down On Blank Check Deals

Democratic US Senator Elizabeth Warren is planning a bill to crack down on the special purpose acquisition company (SPAC) industry after a "proliferation" of bad deals resulted in huge losses for investors, according to a report to be released Tuesday seen by Jessica DiNapoli of Reuters.

Photo Insert: While Warren's bill may struggle to gain traction this year with lawmakers focused on the midterm elections, it's likely to increase pressure on the industry.

Warren's forthcoming "SPAC Accountability Act of 2022" would increase the legal liability for a range of parties involved in such deals, enhance investor disclosures and lock up for a longer period early investors who bankroll the deals.

While Warren's bill may struggle to gain traction this year with lawmakers focused on the midterm elections, it's likely to increase pressure on the industry which is already facing proposed new curbs from the US Securities and Exchange Commission (SEC).

Wall Street's biggest gold rush of recent years, SPACs are shell companies that raise funds through a public listing with the goal of acquiring a private company and taking it public.

The process allows the target to sidestep the stiffer regulatory scrutiny of a traditional initial public offering (IPO), sparking criticism from Warren and others that too many deals are of poor quality or suffer from lax due diligence.

In the report on Tuesday, Warren also detailed an investigation she began last year on SPACs and their backers, which found investors had been harmed and further regulation was needed.

“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered," Warren said in a prepared statement.

"This industry is rife with fraud, self-dealing, and inflated fees, and the SEC and Congress should continue to act to crack down on these abuses.” Investment banks have raked in billions of dollars feeding the frenzy for SPAC deals, which have left many investors with losses, Reuters reported this month.

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