WASHINGTON – Some special-purpose acquisition companies have improperly accounted for warrants sold or given to investors, securities regulators said Monday, which intensified scrutiny of popular vehicles.
Warrants are a standard part of how SPACs raise money, including hedge funds and other private investors. The potential return of early investors in SPAC is huge if the company’s shares increase due to various features of the structure, including guarantees that give some investors the right to buy more shares at a predetermined price in the future.
SPACs are blank check companies that raise money from the public with the goal of buying a business and making it public. If the agreement is reached, the target company takes SPAC’s place on a stock exchange, in a transaction that resembles an initial public offering. SPACs have grown over the past year, as many manufacturers of operations rushed to start them and take advantage of the thirst of investors for the structure.
SPACs usually classify warrants in their balance sheets as equity. In certain circumstances, they should be classified as liabilities, which would require the company to periodically account for changes in the value of warrants, the Securities and Exchange Commission said in a statement released Monday afternoon. One of the impacts of the SEC announcement: affected SPACs would have to reconfirm their financial results if fluctuations are considered significant, the SEC said.
The Wall Street watchdog has begun to examine the market more closely, as this year SPACs proliferated and raised nearly $ 100 billion. A senior SEC official said last week that SPACs may not have any regulatory advantage over the standard public offering, indicating that the agency would examine failures in the same way that IPOs do.