(Reuters) – The US Securities and Exchange Commission has increased its demand for Wall Street & # 39 ;s blatant occupational disease and is looking for potential conflicts of interest that arise when banks act as insurers and advisers for the same business, three people with direct knowledge of the matter told Reuters.
The Securities and Exchange Commission is examining whether certain fee structures could stimulate specialty lenders or SPACs insurers to hedge unsuitable transactions when also advising on the latter merger, potentially putting investors at risk. , so folket.
Banks that have received SEC requests for information include the best SPAC insurers Citigroup, Credit Suisse Group, Morgan Stanley and Goldman Sachs, they said.
Bank Speakers declined to comment.
SPACs are listed shell companies used to make private companies public, thus eliminating the more traditional and lengthy IPO. [1
Since March, the SEC has focused its investigation on a group of banks, law firms and SPAC sponsors involved in troubled business and has sought more information about the deal and interviewed executives according to two of the three sources.
The SEC is particularly interested in the fees banks have earned when playing multiple roles in a deal, all three sources said. They refused to say which deals were reviewed.
"The big question for the SEC is to understand if the advisers are contradictory," said one of the people.
A spokesman for the SEC did not respond to a request for comment.
SPAC sponsors typically pay banks a 5.5% fee to subscribe to the IPO, some of which is paid in advance, while the rest is paid after the merger.
Guarantee banks can earn more fees if they also continue to represent the concentration target and help the SPAC sponsor raise additional money from private investors to finance the acquisition.
The SEC investigates potential conflicts in such situations when a bank works for both sides of the transaction and stands to earn a piece of fees when the merger goes through.
Critics say such arrangements could encourage banks to talk up targets or play down potential problems, which could hurt investors if the target company's performance underperforms, or other regulatory or legal issues emerge after the merger.
SPAC returns have followed the S&P 500 and some SPACs have been accused by shareholders and government investigators of misleading disclosures.
The sources refused to be named because the discussions are private. Regulatory requests for information do not necessarily imply errors.
According to the rules, lawyers and auditors are obliged to disclose their fees in SPAC's regulations, but the banks are not. In its latest inquiries, the SEC has asked banks for more information about their payments, the three sources say.
The SEC has also asked banks for information on due diligence they performed in SPAC mergers, including when reviewing revenue growth forecasts. and other revelations from the target companies, said one of the sources.
The increased scrutiny has led some banks to review their processes and increase due diligence, said the third source, adding that some banks and sponsors also often separated the insurance and advisory roles.
SPAC has been around for decades, but over the past 18 months, the business structure has been popularized by high-profile sponsors and increased by simple monetary conditions.
A record nearly $ 100 billion was raised by US SPACs in the first quarter of 2021, according to Dealogic, before dealmaking was flagged among market saturation and increased SEC scrutiny. Catalog