Senate Democrats seeking information from SPACs, questioning 'misaligned incentives'

Senate Democrats seeking information from SPACs, questioning 'misaligned incentives'
© Greg Nash

Four Senate Democrats sent letters to the creators of six Special Purpose Acquisition Companies (SPACs) on Wednesday over concerns that there are “misaligned incentives” between them, early investors and retail investors.

Sens. Elizabeth WarrenElizabeth WarrenSinema's office outlines opposition to tax rate hikes The CFPB's data overreach hurts the businesses it claims to help Runaway higher ed spending gains little except endless student debt MORE (Mass.), Sherrod BrownSherrod Campbell BrownWhen the Fed plays follow the leader, it steers us all toward inflation Which proposals will survive in the Democrats' spending plan? Senate Democrats call for diversity among new Federal Reserve Bank presidents MORE (Ohio), Tina SmithTina Flint SmithSenate Democrats call for diversity among new Federal Reserve Bank presidents Progressives push back on decision to shrink Biden's paid family leave program Democrats scramble for climate alternatives MORE (Minn.) and Chris Van HollenChristopher (Chris) Van HollenDozens of Democrats call for spending bill to pass 'climate test' GOP tries to take filibuster pressure off Manchin, Sinema Overnight Energy & Environment — Biden set to restore national monuments rolled back by Trump MORE (Md.) sent letters to six SPAC creators over concerns that the companies’ insiders can take advantage of regulatory and legislative loopholes that negatively impact regular investors. 

SPACS are considered an alternative to an initial public offering (IPO) for taking private companies public, and some lawmakers are advocating that SPACs should have more oversight, according to Bloomberg. The formation of an SPAC is also less of a long and expensive process, according to CNN.

ADVERTISEMENT

The six SPAC creators who received letters include Stephen Girsky, managing partner at VectoIQ, LLC; Tilman Fertitta, chairman and CEO of Fertitta Entertainment, Inc.; Michael Klein, founder of M. Klein & Associates; Howard Lutnick, chairman and CEO of Cantor Fitzgerald; David Hamamoto, CEO and chairman of DiamondHead Holdings Corp.; Chamath Palihapitiya, co-founder and CEO of The Social+Capital Partnership, L.L.C.

“We seek information about your use of SPACs in order to understand what sort of Congressional or regulatory action may be necessary to better protect investors and market integrity and ensure a fair, orderly, and efficient marketplace,” the four Democrat senators wrote in the letters.

“We are concerned about the misaligned incentives between SPACs’ creators and early investors on the one hand, and retail investors on the other.”

In the letters to the SPAC creators, the senators requested information about which SPACs they had been involved in and their relationships to the shell companies, information on their communications with investors and information on possible financial stakes related to the SPACs, among other pieces of information. 

The senators requested that the SPAC operators respond to their letters by Oct. 8.