SPAC Marketing Heavily Curtailed in House Democrats’ Draft Bill

(Bloomberg) -- The SPAC boom has House Democrats mulling an aggressive response: largely ban Wall Street from marketing blank-check companies to retail investors.  

The proposal was posted on the House Financial Services Committee’s website ahead of Tuesday hearing featuring Securities and Exchange Commission Chair Gary Gensler, signaling topics that lawmakers intend to ask him about. Another draft bill would kick companies off U.S. stock exchanges if they don’t disclose the diversity of their leadership. 

The bill cracking down on special purpose acquisition companies would only allow brokers and money managers to recommend SPACS to so-called accredited investors -- clients who clear a high net-worth threshold. Marketing such shares to smaller investors would be barred unless SPAC sponsors give up much of what’s known as “the promote,” the loads of free stock that often comes with announcing a listing. 

Despite their recent resurgence, SPACs have been around for decades. They are publicly traded shell companies with no revenues that raise money from investors with the goal of buying a profitable business. A top worry is that so many SPACs have been started over the past two years that there will be few viable companies for them to acquire, leaving retail investors holding the bag. 

Gensler has already laid out an expansive list of four dozen rule proposals, including plans to increase disclosures for SPACs and corporate diversity. His regulatory plans for the agency also include progressive priorities like climate change. 

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