The SEC says it never invests in a SPAC based solely on the involvement of a star

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

“The involvement of celebrities in a SPAC does not mean that investing in a particular SPAC or SPAC is generally appropriate for all investors,” the SEC said in an investor alert posted on its website.

“Stars, like everyone else, may be attracted to a risky investment or may be better able to bear the risk of loss. 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 agency said.

The explosive popularity of the SPAC market attracted a lot of athletes and other famous figures to jump on the cart. NBA star Shaquille O’Neal is a consultant with Forest Road Acquisition Corp., which last month announced a three-way merger with fitness company BeachBody. Musician Ciara Wilson is the director of Bright Lights Acquisition, which targets a company in the media and entertainment industry. Former MLB star Alex Rodriguez recently launched his own SPAC.

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

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

“Never invest in a SPAC based solely on the involvement of a star or based solely on other information you receive through social networks, investment newsletters, online advertisements, e-mail, investment research websites “Internet chat rooms, direct mail, newspapers, magazines, television or radio,” the SEC said in an alert.

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

“These newer SPACs increasingly feel like an inner 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 the way to prevent injury [is to] do people’s homework and if there is business before you get close to these things. “