Chamath Palihapitiya, once dubbed the “SPAC King,” and five other blank-check company sponsors were asked by Senator Elizabeth Warren and three other Democratic legislators about conflicts of interest and business practices that disadvantage retail investors.
The letters pointed to the alleged “range of maneuvers – some of them downright astonishing to the uninitiated – to win even when investors lose.”
“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 letters added.
Warren as well as Sens. Sherrod Brown, Tina Smith, and Chris Van Hollen sent identical individual letters dated September 22 to Palihapitiya, co-founder and CEO of The Social+Capital Partnership; Michael Klein, founder of M. Klein & Associates; Stephen Girsky, managing partner at VectoIQ; Tilman Fertitta, chairman and CEO of Fertitta Entertainment; Howard Lutnick, chairman and CEO of Cantor Fitzgerald; and David Hamamoto, CEO and chairman of DiamondHead Holdings.
The senators said they expect a response by October 8.
Touted as a faster and cheaper alternative for companies to go public compared to the traditional IPO, they have garnered support from Wall Street heavyweights as well as pop icons and professional athletes. But they also require fewer disclosures than IPOs do.
SPACs, which have been around for decades, rocketed to prominence last year with the trend accelerating in 2021. Year-to-date SPAC issuance has far outpaced full-year 2020 totals.
“This meteoric rise is concerning,” the letters said. “The SPAC process often appears to be structured to exploit retail investors to the benefit of large institutional investors such as hedge funds, venture capital insiders, and investment banks.”
The senators said industry insiders can “take advantage of ordinary investors throughout this process,” such as making “overly optimistic statements about target companies” – something not allowed in a traditional IPO route.
“Statements by SPAC sponsors to convince shareholders to vote in favor of a merger may not have to meet the same disclosure standards,” the senators added.
The concerns raised by the lawmakers aren’t the first time authorities have questioned the process of SPACs.
The US Securities and Exchange Commission, under then Acting Chair Allison Herren Lee, began an inquiry in March into Wall Street’s blank-check company craze by seeking voluntary information.
And current Chair Gary Gensler said in July the SEC was investigating major banks over conflicts of interest in the SPAC deal-making process that exploded in the past year.
Other controversies seem to follow SPACs. In August, billionaire hedge fund manager Bill Ackman’s blank check firm, Pershing Square Tontine Holdings, was sued by former SEC Commissioner Robert Jackson and Yale law professor John Morley for not operating as a SPAC.
SoFi Wealth, a unit of fintech firm SoFi Technologies, has agreed to pay the Securities and Exchange Commission $300,000 to settle allegations relating to conflicts of interest over two of its proprietary exchange-traded funds.
The regulator on Thursday sued the robo-advisor for putting preference on placing client assets into its newly-created ETFs that were sponsored by its parent rather than third-party ETF. This, then, helped market the SoFi brand as having a broader array of services and products than previously offered, according to the agency.
“These proceedings arise out of breaches of fiduciary duty in connection with its April 2019 investment,” the SEC said in its statement.
At that time, San Francisco-based SoFi Wealth transferred assets of 20,000 clients from third-party ETFs into its two proprietary ETFs without informing the clients. To do this, SoFi Wealth, according to the SEC, used the proceeds of the sale to purchase positions in the SoFi ETFs, resulting in some tax consequences for many of the clients.
More specifically, over 15,000 SoFi Wealth clients incurred capital gains as a result of the move, which amounted to $772,000 in short-term capital gains, according to the SEC.
“We’re pleased to have resolved this matter with the SEC,” a SoFi spokesperson told Insider in a statement. “As a company, we treat compliance with all applicable laws and regulations as our top priority.”
Clover Health Investments surged as much as 19% on Thursday after the Medicare Advantage insurance provider set its 2021 revenue forecast well above analyst expectations.
The company, which was taken public in January through a special purpose acquisition company, or SPAC, led by venture capitalist Chamath Palihapitiya, forecast full-year 2021 total revenue of $1.4 billion to $1.5 billion, which is above the $811.3 million Bloomberg consensus estimate. Analyst projections had come in between $796 million to $819 million.
The stock is still down 45% year-to-date, having fallen more than 50% from a record high reached in June that was spearheaded by retail investors active on Reddit and other social media sites.
Clover said its 2021 revenue outlook includes Medicare Advantage revenue of $760 million to $790 million and Medicare Direct Contracting revenue of $650 million to $700 million. The company also expects its Medicare Advantage membership to be in the range of 68,000 to 70,000 by December 31, representing a growth rate of 17% to 21% as compared with year-end 2020.
The company’s second-quarter revenue came in at $412.5 million, higher than $172.1 million a year earlier and above the FactSet estimate of $193 million, with the increase driven by the company’s Direct Contracting program. It swung to a loss of $0.78 per share from earnings of 1 cent a share in the same quarter last year.
In a note, Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia said the stock is one that “looks increasingly likely to capture some notoriety” as comments about the company accounted for 20% of activity on Reddit’s Wall Street Bets forum in the last day.
The analysts noted the end of the post-merger lockup period and the rise in short interest as “the two main arguments to buy the stock” among retail traders.
One Redditor, who received 500 upvotes, said in a post that the end of the lockup period Monday would give retail traders an opportunity to buy into the stock. Shares dropped 2% Tuesday, and Wednesday they rose 2.1% at 8:40 a.m. in New York.
“The moment I heard SOFI was going public was the moment I dropped a lot of money into it, used the app for a long time and they’re going to be dominating the FinTech sector,” the Redditor said.
Redditors, who have become known to invest in heavily shorted companies, also noted SoFi’s high short interest rate. According to Fintel.io, the company has a short-volume ratio of 21%.
Travis Rehl, the founder of Reddit investing-tracker HypeEquity, said in a morning note that many retail investors looking to hold SoFi long-term are comparing it to the next Square or PayPal. Among other financial services, the company has a trading platform called SoFi Invest.
Reddit traders are driving rallies in a string of new meme stocks this week, including Clean Energy Fuels and ContextLogic, among others.
Clean Energy Fuels, the Newport Beach, California-based natural gas provider, jumped 45% Wednesday, as ContextLogic, the mobile e-commerce company, jumped 28%, building on a 50% rise during Tuesday’s trading session.
The two new meme stocks were among the top-trending companies on Reddit investing threads like Wall Street Bets, according to HypeEquity data. Largely bullish Redditors agreed ContextLogic “has room to grow,” and as for Clean Energy Fuels, the phrase “short squeeze” was a common theme.
Recently, Redditors have also renewed their interest in Clover Health, the health-insurance provider backed by Chamath Palihapitiya. The stock – which plummeted earlier this year following a report from short-seller Hindenberg Research accusing the company of misleading investors, customers, and the federal government – remained the top-hyped name on Reddit. The stock was also trending on Twitter.
Auto retailer CarLotz and electric vehicle-maker Workhorse bolstered gains from Tuesday, rising as much as 10% and 18%, respectively, thanks to their new status as meme stocks among Reddit investors. Meanwhile, electric-vehicle manufacturer Canoo whipsawed after rallying the day prior.
As for Wendy’s, the fast-food restaurant struggled to replicate the previous day’s rally as it dropped as much as 7% after the market opened. The stock on Tuesday ended at its highest level in nearly two decades, at $28.87, higher by almost 26%.
For Wendy’s, the word “tendy” was the most mentioned in posts about the company – a reference to both chicken nuggets on the menu and Reddit lingo that equates “tendies” with returns on investment.
Meanwhile, meme stock classics AMC Entertainment and BlackBerry, which have remained steady this week after massive gains last week, dropped. The movie-theater chain fell as much as 12%, while BlackBerry dropped 9%. GameStop, this year’s original meme stock, saw a modest rise.
Chamath Palihapitiya filed for four blank-check companies on Wednesday along with a new partner, according to paperwork registered with the Securities and Exchange Commission.
The latest additions build on his roster of 6 special-purpose acquisition companies already raised, yielding more than $1 billion.
The four new SPACs are launched under a partnership between Palihapitiya’s venture firm Social Capital and hedge fund Suvretta Capital Management. One of Suvretta’s core investing strategies is to identify companies that are disruptive to the healthcare sector.
The companies may initially pursue a combination target in any industry as part of its proposed business strategy, filings state. Each SPAC is seeking to raise $200 million with ultimate specific focuses within the biotech industry: neurology, oncology, organs, and immunology.
They are each named Social Capital Suvretta Holdings Corp., distinguished by the Roman numerals I, II, III, and IV. The tech billionaire has said he plans to eventually do 26 SPAC deals, one for every letter of the alphabet.
Palihapitiya will serve as CEO and chairman, while Suvretta’s healthcare portfolio manager, Kishen Mehta, will serve as president.
“Our company unites scientists, physicians, entrepreneurs and biotechnology-oriented investors around a shared vision of identifying and investing in innovative and agile biotechnology companies,” the filing stated.
The SPACs, which carry the ticker symbols DNAA, DNAB, DNAC, and DNAD, are expected to trade on the Nasdaq.
Suvretta, founded in 2011 by former Soros fund manager Aaron Cowen, is dedicated to three investing strategies. One of these is its healthcare-focused unit Averill, set up in March 2020.
Chamath Palihapitiya once blasted an older man for challenging the billionaire’s track record and projections for his first blank-check company deal, Virgin Galactic, according to a report published Monday by The New Yorker.
While he was pitching the company’s prospects to investors in 2019, the Social Capital CEO met a bunch of mutual-fund managers in New York. He delivered an impressive speech about helping mankind reach the stars with the spaceflight company, and underlined how it could change the world.
Chamath is the chairman of Virgin Galactic. He failed to include that millions had gone up in smoke for the company after it spent heavily to ready its spaceships, and that it had missed every self-imposed deadline in its 15-year history, the New Yorker’s Charles Duhigg wrote.
A conservatively-dressed older attendee present in the audience cut into the billionaire’s speech, questioning his proclamations, the report said. After allowing him to sound off for a while, Palihapitiya retorted with: “You’re a complete f—ing idiot.”
Astonished, the older gentleman had no response as the “SPAC King” laid into him. “Have you even looked at the prospectus? Did you even f—ing Google me before you came in here?”
More wide-eyed attendees were waiting in silence to see how the situation would end. “How lazy are you?” Palihapitiya said. “I don’t even want your f—ing money.”
But soon after, his remarks were met with laughter as everyone aged under 50 began smiling broadly. “It was brilliant,” one attendee told the New Yorker. “It was completely calculated. That old guy wasn’t ever gonna invest in space tourism. But the other people in the room – they loved it!”
About 50% of the group called the billionaire’s office later to declare they wanted to support the Virgin Galactic investment, the report said.
“People either love Chamath or they hate him, and that’s fantastic, because polarization gets attention,” the attendee was reported saying. “Polarization gets you on CNBC, it gets you Twitter followers, it gets you a megaphone. If you believe that Chamath can get an hour on CNBC to explain Virgin Galactic, then you want to buy into this deal, because attention is money.”
He and his business partner Ian Osborne indirectly own millions of shares in the space-tourism company via their investment vehicle, SCH Sponsor Corp.
Social Capital didn’t immediately respond on behalf of its CEO Chamath Palihapitiya to Insider’s request for comment.
The VSS Unity took off from Spaceport America, New Mexico, with a three-person crew Saturday. Once it reached a speed of Mach 3, the mothership VMS Eve, released it, and the VSS Unity reached space at an altitude of 55.45 miles before returning to the spaceport, the company said in a Saturday press release.
“Today’s flight showcased the inherent elegance and safety of our spaceflight system, while marking a major step forward for both Virgin Galactic and human spaceflight in New Mexico,” Virgin Galactic Chief Executive Officer Michael Colglazier said in the statement, adding that the company is making “the dream of private space travel a reality.”
Social media chatter around the commercial space-flight company took off following the flight. Virgin Galactic was the top stock in conversation among Reddit retail traders Monday with the flight being the most talked about subject, according to data from Hype Equity, which tracks pages like Wall Street Bets.
The company’s rocket failed to reach outer space in December, and then in February, it delayed a test flight because of electromagnetic interference.
Following the review of all test data and inspection of the spaceship and mothership, the company said it plans to proceed with the next flight test milestone.
Shares of the Las Cruces, New Mexico-based space tourism company, which went public in October 2019 with a SPAC, have largely declined this year after the failed test flight and after the company’s founder, Richard Branson, and its chairman Chamath Palihapitiya, sold their stakes in the business.
Retail traders on platforms such as Wall Street Bets drove the stock price to all-time highs in January and February, as it became a favorite on the subreddit amid high short-seller interest. Shares reached an all-time high of $52.41 in February, but gave back those gains in the following months, closing at $21.07 on May 21.
In pre-market trading Monday morning, shares traded about 20% higher at around $25.
In the Saturday press release, the company said the flight “gives Virgin Galactic’s Future Astronaut customers a glimpse of what lies ahead.”
But the Bloomberg report didn’t drive the same surge in Social Capital Hedosophia Holdings Corp. VI on Wednesday that it might have a few months ago when SPACs were all the rage on Wall Street. The SPAC vehicle was down 2% in Wednesday trades, signalling that investors might not be impressed with the potential deal.
The SPAC market has deflated following a peak in the first quarter of 2021. Few issuances have gone public since April, when the SEC signaled that it would increase regulatory scrutiny on the IPO vehicles, and SPAC stocks have cratered, with the Defiance Next Gen SPAC ETF down nearly 30% since its February peak.
The site has traded over $225 million within a month of its launch and is worth about $1 billion, according to a recent report from New York Magazine.
BitClout is designed to let people bet on the popularity of public figures by buying tokens associated with people’s profiles. Users can use BitClout coins to buy a Creator’s Coin and watch its value change based on the creator’s popularity on the site. The site started with 15,000 creator accounts preloaded from the most popular Twitter profiles.
At the moment, Tesla CEO Elon Musk has the most expensive Creator Coin, coming in at nearly $70,000. The Creator Coins gain or lose value depending on how many people buy coins associated with the profile, as there are between 100 to 1,500 coins in existence for each profile.
Individuals included in the 15,000 preloaded Twitter profiles can claim their account by tweeting their BitClout public key, found under the profile section, alongside #bitclout. The creator then receives a blue check mark next to their account name and can begin earning a percentage of the profits from the Creator Coins associated with their name.
Even people outside of public figures and celebrities can profit off their own Creator Coins, as well as generate money investing in other accounts. BitClout investor @Sigil told Insider, he invested about $150 Canadian dollars in his BitClout account and made thousands within three days. The 17-year-old was also able to push his own coin’s value from $0 to a market cap over $500,000.
How to set up your BitClout account
The first step to setting up your BitClout account involves keep tracking of a “seed” phrase for your account. The string of non-related words operates as a type of passcode or safety measure for protecting your account.
At this point, it is important to save a picture or write down your seed phrase, as the site will require the phrase whenever you need to log in or out of your account. The site warns that if you lose your seed phrase, your account, along with the money you put into it, will be lost forever.
The next steps to setting up your account involves providing a phone number and an email address, as well as verifying your phone number.
Once you have officially created your account, you can choose whether to buy BitClout coins immediately, browse Creator Coins to buy, or update your profile information by claiming a username and avatar image.
On your profile you can also set your “Founder Reward Percentage.” The percentage is automatically set at 10%, but can be shifted anywhere from 0% t0 100%. The Founder percentage allows you to keep a certain percentage of your Creator Coins. If a founder sets the percentage too high it can discourage potential buyers, but owning your own coins can also help push the value of your own Creator Coins up.
How to buy BitClout coins
The only way to buy BitClout is by using bitcoin. Thus, the first step is to download a digital wallet app or create an account on a desktop and buy bitcoin.
Once the wallet is set up, the next step is to go to the “Buy BitClout” tab on the site. Copy the address under “Send Bitcoin to this address” and go back into the wallet app. In the app, select “Send Crypto to another wallet.” Then, select the amount of money you want to convert into BitClout and hit “Continue.”
When the next page appears on the digital wallet, paste your BitClout address into the “To” field and select the preview button. You will see a preview of the transfer, as well as the network fee. If the amount is an appropriate number, you can hit “Send now” on the digital wallet.
It should only take a few moments, but the amount should then appear on your BitClout account, under “Buy BitClout.” If It does not immediately appear, you can also hit “Refresh” under “Amount Deposited.”
Once the bitcoin has been deposited in your account, you can use the coins to buy BitClout coins. Prices for the coins fluctuate, but were $170 per BitClout on Friday.
Under “Step Two” on the page, type the amount of BitClout you want to buy or convert all the bitcoin by hitting “Max.”
In order to convert to BitClout, you must exchange at least 0.0001 Bitcoin, or about $6.40, according to the current value of BitCoin. Once the number has been entered, you can hit “Buy BitClout.” Then a review of your purchase will pop up on the screen; hit the “OK” button to complete the conversion.
After you hit “OK,” you will get a screen showing your new BitClout balance.
How to use the BitClout site
On the site you can follow other accounts, like, comment and direct message, much like Twitter. The feed is designed to emulate the feel of Twitter, but also uses a creator’s market value to determine which comments are prioritized on accounts. All posts are public on the site’s general feed.
Each action requires users to maintain some BitClout coins in order to pay the gas fees for each action which is recorded on the blockchain.
Users can also invest in Creator Coins by searching for the profiles and selecting the “Buy” button, which will be followed by a confirmation page.
While the most expensive Creator Coin on BitClout currently belongs to Musk, BitClout investor @Sigil argues the best way to make money on the site is to invest in accounts that are valued near zero.
“They can only go up and you can help push them up by buying into the account,” @Sigil told Insider.
When you create a profile, there are initially zero coins in existence, which makes the price for the creator’s coins $0. When a user buys into another account, BitClout mints the coins and sells them according to a price curve, making it more and more expensive as more coins are purchased.
The money you use to buy the coins gets stored in the user’s profile and adds to the value of the account. You can also sell the coins and the profile will buy them back from you, causing the account’s value to go down.
While BitClout has become increasingly popular since it was launched over a month ago, the site is already facing criticism
Many critics of the site have questioned the security of the platform, as well as the anonymity of its creator known only as @diamondhands. BitClout’s bitcoin holdings, which typically are secured on the blockchain, are held privately in servers, NY Mag reported. The site also does not currently have an option to exchange its coins for US dollars.
BitClout responded to doubts about its security on Twitter. “A rumor has been going around that BitClout is insecure,” @Bitclout_ tweeted. “Just wanted to say this is untrue full-stop. The dev community completed multiple audits specifically around seed phrase handling prior to launch, and the nodes have been running since last year without issue.”
@Sigil told Insider he doesn’t see BitClout as any different than bitcoin. When the first decentralized cryptocurrency launched it also did not have a way to directly convert the bitcoins back to US dollars.
For now, users can sell their coins on various Discord servers or via Twitter threads. @Sigil is also working on his own business to solve this problem by building his own trading site called BitSwap, a site that allows people to buy and sell BitClout for Ethereum.