The SEC says never invest in a SPAC based solely on the participation of a celebrity

The Securities and Exchange Commission issued a warning Wednesday against celebrity-backed special-purpose acquisition companies, urging investors to think twice before jumping on it.

“Celebrity participation in a SPAC does not mean that investing in a particular SPAC or SPAC is appropriate for all investors,” the SEC said in an investment alert posted on its website.

“Celebrities, like anyone else, can attract their stake in a risky investment or they can better maintain the risk of loss. It’s never a good idea to invest in a SPAC just for someone famous to sponsor or invest in or say it’s a good investment “, said the agency.

The explosive popularity in the SPAC market has attracted a large number of athletes and other celebrities to jump on the bandwagon. NBA star Shaquille O’Neal is an advisor to Forest Road Acquisition Corp., which last month announced a three-way merger with fitness company BeachBody. Music Ciara Wilson is the director of Bright Lights Acquisition, which targets a media and entertainment industry company. Former MLB star Alex Rodriguez also recently launched his own SPAC.

SPACs raise capital in an initial public offering and use the cash to merge with a private company and make it public, usually within two years. The issue continued at a record pace this year with more than $ 77 billion raised in the first quarter of 2021 alone, already rivaling the capital as of 2020, according to SPAC Research.

The SEC said investors should do their own research before investing in SPAC. These offers are considered riskier than traditional IPOs because there are often no attachments.

“Never invest in a SPAC based solely on the participation of a celebrity or based solely on other information you receive through social media, investment newsletters, online ads, email, research websites ‘investments, Internet chat rooms, direct mail, newspapers, magazines, television or radio,’ the SEC said in the alert.

CNBC’s Jim Cramer previously raised a red flag on these celebrity SPACs, saying they “feel like an inside joke for the super-rich.”

“These newer SPACs increasingly feel like an inside joke for the super-rich and a way for celebrities to monetize their reputation,” he said. “Believe me, you don’t want to invest in someone else’s inner joke, so please, please, please, how to prevent it from getting hurt [is to] do homework for people and if there is business before you get close to these things. “