Losses in SPACs
The SPAC bubble is bursting, and investors are losing money. Since peaking in March 2021, the IPOX index that tracks the after market performance of Special Purpose Acquisition Companies (“SPACs”) in the U.S. is down 25%.
In 2020, investors poured over $83 Billion into SPACs, and the amount raised so far in 2021 has been even more stunning. Basketball stars, a former Trump advisor, and a self proclaimed “successor to Warren Buffett” have promoted themselves and their SPACs. These so called “blank check” investments have no operating business and no known business plan. Investors are simply writing blank checks to the promoters. What could go wrong?
Plenty, it seems. Consider Nikola, which merged with a SPAC, VectoIQ, in June 2020. Its CEO was forced to resign after it was revealed that the “electric semi trucks” it claimed to manufacture weren’t actually moving under their own power. They were just “models” of trucks, or models of “possible trucks”. In any case, investors in VectoIQ are the losers.
All six Social Capital Hedosophia-linked SPACs, started by celebrity investor Chamath Palihapitiya, even including the three that had completed mergers, have declined stunningly since February 2021. They have fallen more than the broader SPAC market. The most well known of them, Virgin Galactic Holdings, Inc., a space tourism business started by Richard Branson, is down by over 50%. Its flights just don’t seem to launch, leaving its investors low and dry.
Palihapitiya’s Clover Health Investments Corp. has also turned out to be bad luck for investors. The SEC investigation of misrepresentations made to investors became public. Its shares have been trading below its $10.00 offering price.
Given the SEC’s timorous but repeated expressions of “concern” about SPACs, it is likely that this frenzied speculative vehicle will be curtailed. However, until then, investors will undoubtedly continue to lose money while enriching SPAC celebrities and promoters.
If you have lost money in a SPAC recommended to you by your investment advisor, please reach out to us by clicking here. Class actions are being considered as to SPACs in which large losses have occurred to groups of investors as a result of undisclosed fraud.