Red-Hot SPACs Tumble on Reports SEC Opening Inquiry Into Frenzy

Blank-check stocks slumped on a report that U.S. regulators are scrutinizing one of the hottest corners of the equity market.

The IPOX SPAC Index, which tracks special-purpose acquisition companies, extended its selloff into an eighth consecutive day. The gauge is still up 45% since the end of July, compared with a gain of 20% for the S&P 500 Index. Bill Ackman’s Pershing Square Tontine Holdings sank as much as 6.1%. Social Capital Hedosophia, the partnership between serial dealmakers Chamath Palihapitiya and Ian Osborne, slid more than 8% earlier Thursday.

Officials at major firms are anticipating letters from the U.S. Securities and Exchange Commission asking about the potential dangers of underwriting a deluge of deals from SPACs, according to two people familiar with the matter. For now, the inquiry appears to be mostly fact-finding, but it could turn into something more formal depending on what regulators uncover, one of the people said. Reuters previously reported the SEC’s inquiries into the industry.

Red-Hot SPACs Tumble on Reports SEC Opening Inquiry Into Frenzy

Regulators may be stepping up their oversight of those companies after a frenzy that has attracted the likes of celebrities including Shaquille O’Neal, Colin Kaepernick, and Alex Rodriguez as well as a who’s who of Wall Street titans. In the past 12 months, more than 700 SPACs have flocked to New York exchanges, seeking to raise about $227 billion, according to data compiled by Bloomberg.

“There have been too many new issue listings and the market simply cannot handle the overflow,” said Christopher Matthaei, a partner at Elevation Securities, which conducts SPAC research.

SPACs are firms that raise money for buying businesses. The reason they’re known as blank check is that they generally don’t have a merger target when they are formed. It’s as if investors are giving the sponsor a blank check to use.

The first recorded listing of a blank-check company dated back to 1993, according to Bloomberg’s data.

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