(Reuters) – The US Securities and Exchange Commission has launched an investigation into Wall Street's shiny acquisition wave and is seeking information on how insurers handle the risks involved, said four people with direct knowledge of the matter.
In recent days, the SEC has sent letters to Wall Street banks seeking information about their specialty companies, or SPAC, deals, the four said.
SPAC are listed shell companies that raise money to acquire a private company for publication, so that such goals can bypass a traditional IPO.
The SEC letters asked the banks to provide the information voluntarily and as such did not rise to the level of a formal investigation need, two of the sources
However, one of the two persons said that letters were sent by the SEC Executive Department, indicating that they can be a precursor to a formal investigation.
This person said that the SEC wanted information on fees, volumes and what controls the banks have for policing the business internally. The other source above said that the SEC asked questions about compliance, reporting and internal controls.
Representatives of the SEC did not immediately respond to requests for comment outside U.S. opening hours.
Wall Street's biggest gold jump in recent years, SPAC has grown globally to a record $ 1
The boom has been driven in part by simple monetary conditions as central banks have pumped cash into pandemic-prone economies, while the SPAC structure provides start-ups with an easier way of publishing with less statutory control than traditional IPOs. But the madness has begun to meet with greater investor skepticism and has also caught the eye of regulators.
This month, the SEC warned investors against buying SPACs based on celebrity claims, saying they closely followed information about SPACs and other "structural" SPACs.
Investors have sued eight companies combined with SPAC during the first quarter of 2021, according to data compiled by Stanford University. Some of the lawsuits claim that the SPACs and their sponsors, who reap big pay days when a SPAC is combined with its target, hid weaknesses before the transactions. assets, and whether large payouts are fully disclosed to investors, a third source said.
Another potential concern is the increased risk of insider trading between when a SPAC is published and when it announces its acquisition target, the other source added.  "Wall Street & # 39 ;s largest banks are asked: what's going on?" in person.