(Bloomberg) -- Elizabeth Warren is coming out in support of the US Securities and Exchange Commission’s proposed rules to regulate blank-check companies, urging more protections for individual investors who can fall prey to Wall Street.
In a letter to SEC Chair Gary Gensler on Friday, the Massachusetts senator said she backed the agency’s proposals for special purpose acquisition companies, or SPACs, “which will level the playing field for retail investors and prevent Wall Street insiders from perpetuating scams and fraud to line their own pockets.”
The stock market rout and threat of an SEC crackdown have put the SPAC market on ice, busting a Wall Street money machine that’s raised hundreds of billions of dollars in recent years. Banks such as Goldman Sachs Group Inc. and Bank of America Corp., which gorged on SPAC fees, are now running in the other direction.
Meanwhile, some small-time investors who poured money into SPACs as a way to get in early on young businesses are seeing their investments crumble. The De-SPAC Index, a basket of companies that completed their tie-ups, has crashed 63% this year. More than 700 SPACs are either on the hunt for deals or racing the clock to close ahead of deadlines to return investor cash.
If the SEC gets its way, SPACs would be required to disclose more information about their sponsors and potential conflicts of interest. The aim is to bring the vehicles closer to traditional initial public offerings, curbing the current legal protections and ability for insiders to give inflated projections about the companies they take public.
Warren, who has been a frequent critic of SPACs, conducted an investigation into prominent industry members last year.
She and other Senate Democrats probed for information from serial SPAC users including Howard Lutnick, chief executive officer of Cantor Fitzgerald, Michael Klein, a former star Citigroup Inc. banker and Tilman Fertitta, the billionaire owner of the Houston Rockets.
“Although the Commission’s proposed rules would significantly bridge the information gap between retail investors and SPAC sponsors, I encourage the Commission to continue pushing against the fundamentally misaligned incentives for stakeholders in this space,” Warren wrote in her letter, adding that she’s working on legislation that would build on the SEC’s proposal.
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