By Kurt N. Schacht / Head of advocacy for the CFA Institute and the former chair of the SEC’s Investor Advisory Committee. The dot-com bubble did not end well for stock markets or investors. Further, it precipitated a range of unethical and manipulative practices that stained Wall Street and financial analysts for years. The SPAC Working Group at CFA Institute is examining a range of market-integrity issues as they relate to the SPAC structure for IPOs. Generally, IPOs are highly speculative for any investor, tend to proliferate at market highs, and have a spotty record of performance in the short and long terms regardless of structure. The CFA Institute SPAC Working Group has empaneled a broad-based group including industry practitioners, stock exchanges, SPAC sponsors, academic experts and investor-protection advocates. The group is focused on: Various SPAC processes and structural issues including the issuance and trading of initial SPAC units. Trading around the announcement of the merger (known as the d-SPAC transactions) and the economics of what a public SPAC investor ends up with compared to other investors in the d-SPAC merger. The clarity and prominence of disclosures on structural issues as well as the risk factors and realistic prospect for investment returns of these highly speculative investments. The balance among conflicts of interest and investor protections that do not exist in traditional IPOs. Of immediate concern for investor protection is the dynamic posed by sponsors more focused on finding a merger candidate to avoid significant deal costs than the merits of the target company. Free-market capitalism is on full display in the brave new SPAC world. The excitement of finding the next tech giant or biopharma game-changer can be intoxicating for individual investors normally foreclosed from private-equity-type opportunities.
