Investors shouldn't make investing decisions related to a special-purpose acquisition company (SPAC) based solely on celebrity involvement with the SPAC, according to an investor bulletin issued Wednesday by the SEC.
Many celebrities, such as movie stars and professional athletes, are involved in investment opportunities related to SPACs, which are shell companies formed for the purpose of acquiring or merging with a private company and taking it public.
The SEC's bulletin cautioned that celebrity involvement in a SPAC does not mean that the investment in a particular SPAC, or SPACs generally, is appropriate for all investors. The SEC warned that celebrities are just as vulnerable as anyone else to be lured into participating in a risky investment.
Celebrities also might be better able to sustain the risk of loss in a SPAC, the SEC said.
"It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment," the bulletin states.
The SEC warned that SPAC sponsors might have conflicts of interest, so their economic interests in the SPAC might differ from those of shareholders. Before investing in a SPAC, the SEC recommends that investors:
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.