Company Insiders Made Billions Before SPAC Bust (wsj.com) 22
The SPAC boom cost investors billions. Insiders in the companies that went public were on the other side of the trade. From a report: Executives and early investors in companies that went public via SPACs sold shares worth $22 billion through well-timed trades, profiting before share prices collapsed. Some of the biggest winners were Detroit Pistons owner Tom Gores's investment firm Platinum Equity, British billionaire Richard Branson and convicted Nikola founder Trevor Milton. They were among many insiders who got shares on the cheap and sold them as they rose in value, according to a Wall Street Journal analysis of insider-trading disclosures associated with more than 200 companies that did SPAC deals. Companies that went public this way have lost more than $100 billion in market value. At least 12 have filed for bankruptcy and more than 100 are running low on cash, battered by higher interest rates and rising costs.
Many executives claimed during the boom that SPAC mergers were a better way for companies to go public than traditional initial public offerings. "It's easy to understand why executives at the companies went with this option," said New York University Law School professor Michael Ohlrogge, who studies SPACs. "It wasn't because it was a better financial technology -- it was because it was just better for them." The Journal analyzed more than 460 companies that did SPAC deals and identified 232 with insider sales based on a review of Securities and Exchange Commission filings submitted through May 18. The analysis focused on disclosures made by investors who own more than 10% of a company and corporate officers and directors.
Many executives claimed during the boom that SPAC mergers were a better way for companies to go public than traditional initial public offerings. "It's easy to understand why executives at the companies went with this option," said New York University Law School professor Michael Ohlrogge, who studies SPACs. "It wasn't because it was a better financial technology -- it was because it was just better for them." The Journal analyzed more than 460 companies that did SPAC deals and identified 232 with insider sales based on a review of Securities and Exchange Commission filings submitted through May 18. The analysis focused on disclosures made by investors who own more than 10% of a company and corporate officers and directors.
They knew what they were doing.. (Score:5, Insightful)
SPACs usually come with a one-year lockup period though, and most didn't get the deal done in time before the stock market went back down -- two of those companies are basically penny stocks now.
The people who made the most money were the folks who did the SPAC listing/financiers, but not the executives and definitely not the employees..they're almost totally wiped out.
Wait wait... (Score:5, Informative)
You mean to tell me that using a shell corporation to bypass the rules and regulations for getting a company listed on the stock exchange ended badly for investors?
I'm shocked!
=Smidge=
What Is a Special Purpose Acquisition Company? (Score:5, Informative)
A special purpose acquisition company (SPAC) is a company without commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company.
Also known as blank check companies, SPACs have existed for decades, but their popularity has soared in recent years. In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019.
Not Technology (Score:4, Informative)
I suppose the technology comes in by finding these phantom stock listing. Which would be harder if they were just on paper.
This was used extensively to put Chinese firms on various markets, until about 2012. One example is a Chinese waste company going public using a U.S. glass company as a shell.
This expanded to blank check companies, like that which Truth Social wants to merge, where investors contribute funds that will later be used for some unknown investment. This is where Truth Social got trouble . The SPAC was not anonymous
A famous example involved a $100 million dollar deli in New Jersey, single location. It was used by Chinese investors. A SPAC is reminiscent of the 2000 era .com, where revenue and fundamentals donâ(TM)t matter. It is creating a ambience. Uplifted from OTC to a stock exchange.
Sounds like a few people need to go to prison (Score:4, Insightful)
For a decade or two and have their fortunes impounded on top of that.
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Why? It was all done within the rules.
Please don't tell us that you advocate outcome based regulations.
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I don't think insider trading is within the rules, irregardless of whether or not it was a SPAC.
Re: Sounds like a few people need to go to prison (Score:2)
It's not insider trading if you tell everyone ahead of time what you're doing. Stupid investors lose money because they're stupid investors. Not because of insider trading.
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Ah, yes. The same bullshit people like you always claim. No, insider trading is never within the rules.
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No, insider trading is never within the rules.
Insiders ALWAYS have a better view of their companies prospects than everyone else. When acquiring a company, it is always incumbent on the purchaser to do a massive amount of research to protect their own investment. Now SPACs come along. The deal makers attract outside capital to finance a purchase. But they have no risk (they make their money off "doing the deal"). The investors put their money in the pool not even knowing what the takeover target is. The insiders still have the advantage of knowledge, b
And this is different how? (Score:2)
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In addition retail investors only make up a fraction of who invests in SPACs, it's largely money managers, private equity, and insiders (who also stand to lose).
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They do or they don't. google had it's IPO while I was in grad school for CS and I distinctly remember all of us agreeing it was grossly overpriced : )
As you might guess, I'm still slaving away at the keyboard...
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The difference is the due-dilligence available for an IPO. There are repurcussions to lying for a proper IPO, whereas a SPAC has such limited disclosures you never really know what you are getting.
This makes SPACs very easy to abuse in multiple ways beyond the compensation grants of an IPO.
Re: (Score:2)
IPOs require a ton of paperwork and have to jump through a pile of regulations in order to go public. It's why the "insiders" make tons of money - they know the process well and can take the company public.
A SPAC is more of a short-circuiting of that - a shell company making nothing, owning nothing, goes public, and the because it's a shell company, the paperwork is relatively light. The only thing in the business plan is "acquire
Why does it matter? (Score:2)
A loophole for going public abused by insiders (Score:2)
Who could have ever predicted that bypassing the checks and balances in going public would ever be gamed by insiders???
Rivian (Score:3)
Hell, just Rivian lost over $100B in market cap since the SPAC. And yes, it is done to be expeditious, with lower threshold of disclosure, limited due-dilligence, and in a way that makes a few people very rich.
I count myself among the idiots who has invested at least some money in SPAC companies (not Rivian though), but for the most part I knew what I was getting into. They are essentially toxic for life.