Chris Prentice

WASHINGTON, (Reuters) – The U.S. Securities regulator will announce a proposal Wednesday to tighten the rules for special purpose acquisition corporations (SPACs). This follows concerns that some investors may be getting a bargain.

SPACs have been the Wall Street’s most significant gold rush in recent years. They are shell companies which list and raise money to buy a private company for the purpose of going public.

The SEC has closely examined these deals over the past year due to concerns regarding inadequate disclosures, high revenue projections and possible fee conflicts, according both to Reuters’ reports as well as statements from public officials.

Reuters reported also that the SEC is considering new guidelines to limit SPACs growth projections.

SPAC sponsors believe projections are crucial for investors especially when the targets are not profitable startups. However, investor advocates claim that they can be misleading or wildly optimistic.

Reuters also reported that the SEC was considering guidance to clarify when a crucial liability protection applies for forward-looking statements.

Market participants believe Wednesday’s rule would address these issues. Reuters was unable to provide further details. According to attorneys, the agency might also decide to subject some SPACs investment company fiduciary duties rules that require disclosure of conflict of interest.

In 2021 the U.S. SPAC Market experienced a rollercoaster ride. There was an explosion of deals in the first half, but it quickly slowed down in the second half when the SEC tightened its grip and deals failed to perform well.

Renaissance Capital data shows that 604 SPACs have raised $144 billion by 2021.