SEC’s Stodgy SPAC Alerts Won’t Protect Investors

The Securities and Exchange Commission issued a warning a few weeks ago about special purpose acquisition companies promoted by celebrities. Given the record amount of money retail investors have already poured into the SPAC craze, including investment vehicles backed by sports figures Alex Rodriguez and Shaquille O'Neal, the notice is months overdue.

Unfortunately, the SEC's approach to cautioning retail investors about risky investment manias has been worse than slow. It often relies on antiquated communications methods — written advisories posted on its website — that won’t reach the many members of its intended audience who are trading online in real time. It also won't effectively counteract the marketing hype proffered by interactive trading apps.

With the increase in the number of retail traders and the proliferation of complex, risky investments, it's past time for the SEC and other regulators to bring their investor education tactics into the 21st century. The SEC has an office of investor education and advocacy, and an accompanying website,, but it's pretty basic and seems to be designed for traditional stock investors.

Remember, the SEC is up against savvy online trading platforms that offer their own versions of market lessons for consumers with sophisticated graphics, and use games to woo the unwary (even if Robinhood is getting rid of its signature confetti, there are still other habit-forming features).

To be sure, overhauling investor education is just one way to protect retail investors, and could even be counterproductive if not matched by stronger measures. Doing nothing more than updating how investment risks are explained and communicated could be misconstrued as giving bad actors free reign and putting the onus on investors to beware. That's why education needs to be complemented by heightened regulation of brokers, more information for retailers and robust enforcement action against wrongdoers.

Still, improving outreach would be a good first step. Be creative, SEC! Your information on topics like initial exchange offerings and margin accounts is helpful, but it’s time to experiment with other methods to disseminate it.

Consider additional videos, a more dynamic social-media feed, even interactive graphics and games. Produce guidance faster, promote it better and feature it on a friendlier interface. An investor bulletin posted on a government website seems woefully out of date compared to the trading platforms investors have at their fingertips.

Publicize enforcement actions more energetically, perhaps in the same chat rooms and online forums where retail traders congregate.

Next, create a public consumer complaint database, similar to what's featured on the Consumer Financial Protection Bureau's website. During the first six months of 2020, U.S. consumer protection agencies received more than 400 complaints about Robinhood (about four times more than competitors) — but we only know that because my Bloomberg News colleagues tallied the numbers after filing a public records request. Allowing investors to make and read others' complaints, and including company responses as the CFPB does, would better inform customers on the topics they want and need to know about.

Finally, take a multi-pronged approach. Not every investor is a millennial, so there should be concurrent efforts to reach those who aren't trading on their phones. In-person outreach via town hall meetings could help.

President Joe Biden's pick to lead the SEC, Gary Gensler, made clear during a confirmation hearing last month that he intends to scrutinize trading apps more rigorously and make sure investors better understand trading risks. One of the easiest places to start is giving the SEC's education efforts an upgrade. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she wrote about personal finance, asset management and mortgages, and oversaw tax coverage for Bloomberg News.

©2021 Bloomberg L.P.

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