Senate Democrats seeking information from SPACs, questioning ‘misaligned incentives’

Four Senate Democrats sent letters to the creators of six Special Purpose Acquisition Companies (SPACs) on Wednesday over concerns that there are “misaligned incentives” between them, early investors and retail investors.

Sens. Elizabeth Warren (Mass.), Sherrod Brown (Ohio), Tina Smith (Minn.) and Chris Van Hollen (Md.) sent letters to six SPAC creators over concerns that the companies’ insiders can take advantage of regulatory and legislative loopholes that negatively impact regular investors. 

SPACS are considered an alternative to an initial public offering (IPO) for taking private companies public, and some lawmakers are advocating that SPACs should have more oversight, according to Bloomberg. The formation of an SPAC is also less of a long and expensive process, according to CNN.

The six SPAC creators who received letters include Stephen Girsky, managing partner at VectoIQ, LLC; Tilman Fertitta, chairman and CEO of Fertitta Entertainment, Inc.; Michael Klein, founder of M. Klein & Associates; Howard Lutnick, chairman and CEO of Cantor Fitzgerald; David Hamamoto, CEO and chairman of DiamondHead Holdings Corp.; Chamath Palihapitiya, co-founder and CEO of The Social+Capital Partnership, L.L.C.

“We seek information about your use of SPACs in order to understand what sort of Congressional or regulatory action may be necessary to better protect investors and market integrity and ensure a fair, orderly, and efficient marketplace,” the four Democrat senators wrote in the letters.

“We are concerned about the misaligned incentives between SPACs’ creators and early investors on the one hand, and retail investors on the other.”

In the letters to the SPAC creators, the senators requested information about which SPACs they had been involved in and their relationships to the shell companies, information on their communications with investors and information on possible financial stakes related to the SPACs, among other pieces of information. 

The senators requested that the SPAC operators respond to their letters by Oct. 8.