The SEC says it’s looking closely at the wild earnings projections attached to many SPAC offerings

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst
FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door

The US Securities and Exchange Commission issued a warning to blank-check companies presenting projections that only give an optimistic outlook of future growth. The agency added that it will “look carefully” at SPAC filings and disclosures as well as those of their private targets.

John Coates, the agency’s acting director for the corporation finance division, said on Thursday that a company would be on “shaky ground” if it only disclosed favorable projections and omitted “equally reliable but unfavorable projections.”

Special purpose acquisition companies or SPACs have been booming, enabling many pre-revenue startups to go public. SPACs are essentially shell companies seeking to merge with private companies with the intention of taking them public. SPACs are often considered a cheaper, faster alternative to a traditional IPO.

SPAC sponsors have also generally been allowed to more freely give projections of future growth than is allowed for companies going public via traditional IPO, which are not allowed to broadcast future sales or earnings.

Coates pointed to the Private Securities Litigation Reform Act safe harbor, a legal liability SPACs often refer to when making optimistic forward-looking statements.

“This…is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses,” he said, referring to the safe harbor.

This, he said, raises significant investor protection questions, and is why he is calling on the agency to treat SPAC deals with the same level of scrutiny as IPOs.

“Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst,” Coates said. “Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.”

Coates added that while projections are woven into the fabric of business combinations, they have to be fair. Forward-looking information, he said, can be “untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRA’s liability protections.” He floated the possibility of having guidance about how projections and related valuations should be presented.

SPACs have attracted a number of high-profile investors including famed fund manager Bill Ackman and billionaire Chamath Palihapitiya. Celebrities have also joined the bandwagon, with icons such as baseball star Alex Rodriguez and tennis legend Serena Williams backing recent SPAC offerings.

Regulators have recently turned their eye to the soaring market. On March 11, acting SEC Chair Allison Herren Lee said that SPAC returns don’t warrant the “hype” they’re getting.

Last year, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, data already show 306 SPACs that raised $98.3 billion, comprising 79% of all public offerings.

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US SEC official warns SPAC dealmakers of the risks and complexities tied to blank-check mergers

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A US markets watchdog official on Wednesday cautioned blank-check company dealmakers about the risks and governance issues that come with raising capital through special-purpose acquisition companies (SPACs).

Paul Munter, the acting chief accountant at the Securities and Exchange Commission, said timelines of such transactions are part of the challenges for private companies that merge with SPACs. That is because their development may still be in early stages.

“Many SPAC acquisition targets may be at an earlier stage in the entity’s development compared to companies that pursue a traditional IPO,” he said in a statement, adding target companies should have a plan to address the demands of becoming public on a speedy timeline.

Munter urged market participants to carefully consider risks, complexities, and challenges in the space, including the consideration of whether target companies are prepared to go public.

SPACs have raised $97 billion across 298 IPOs so far this year, exceeding the previous year’s record of $83 billion raised, according to data from

But March was a rough month for companies in the space as firms and individual investors grew increasingly cautious over SPAC investing. 93% of SPACs that went public in the last few weeks of the month were trading below par value, or $10 per share. JPMorgan said SPAC acceleration may be hitting a peak and could slow for the rest of the year.

Munter made his statement about a week after the regulator wrote to Wall Street banks to seek voluntary information on their SPAC dealings.

“Given the explosion in popularity of SPACs, it’s no surprise that enforcement is asking questions – this is the beginning of what I expect will be heightened scrutiny of trading and disclosures to investors arising from the surge of these transactions,” Doug Davison, partner at law firm Linklaters, said.

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The SEC has awarded nearly $200 million to individual whistleblowers in 2021, beating its annual record

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The Securities and Exchange Commission has given out nearly $200 million in rewards to whistleblowers in 2021, surpassing its annual record.

The regulator awarded $500,000 to a whistleblower on Monday bringing this year’s total number of award recipients to 40 individuals, another record, according to a press release.

The most recent whistleblower action “allowed the Commission and another agency to quickly file actions, shutting down an ongoing fraudulent scheme.” Specific details on the “fraudulent scheme” or the whistleblower’s identity weren’t revealed by the SEC.

The SEC has now awarded roughly $760 million to 145 individuals since issuing its first award in 2012.

The goal of the whistleblower program at the SEC is to “minimize the harm to investors, better preserve the integrity of the United States’ capital markets, and more swiftly hold accountable those responsible for unlawful conduct.”

The Office of the Whistleblower was established by Congress on July 21, 2010 in Section 922 of the Dodd-Frank Act.

Whistleblowers are eligible for an award under the act if they voluntarily provide the SEC with “original, timely, and credible information” that leads to a “successful enforcement action.” Awards for whistleblowers can range from 10%-30% of the money collected when sanctions exceed $1 million.

Payments to whistleblowers are made out of an investor protection fund established by Congress. The fund is financed entirely through “monetary sanctions paid to the SEC by securities law violators.”

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SoftBank is under investigation by the SEC following its risky ‘Nasdaq whale’ investments

masayoshi son softbank

The Japanese investing conglomerate SoftBank, which has holdings in household names like Apple, Amazon, Tesla, Uber, DoorDash, and Sprint, is under investigation by the Securities and Exchange Commission, Vice News reported Wednesday.

The agency’s acknowledgment of its investigation follows reporting by the Financial Times last year that revealed SB Northstar, which is controlled by SoftBank CEO Masayoshi Son, as the “Nasdaq whale” behind secretive, risky multibillion-dollar bets on tech stocks during last summer’s market rally.

The SEC disclosed the investigation in response to a public records request from Think Computer Foundation founder Aaron Greenspan, according to the legal transparency group PlainSite.

Greenspan had asked for “any investigative materials” about SoftBank or its web of companies “specifically relating to SoftBank’s trading of stocks and derivatives on those stocks,” according to PlainSite. After initially denying that it had any relevant records, the SEC responded to Greenspan’s appeal by saying that it had records, but couldn’t share them, because “the investigation from which you seek records is active and ongoing.”

SoftBank and the SEC did not respond to requests for comment on this story.

SoftBank faced intense pressure from its major shareholders to unwind its risky options positions after SB Northstar posted $3.7 billion in losses in November, which included $2.7 billion in derivatives losses, the Financial Times reported in November. SoftBank eventually relented to that pressure.

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Tesla failed to appoint a lawyer who could stop Elon Musk’s ‘erratic’ tweets, a lawsuit filed by an investor alleges

Elon Musk
  • A lawsuit against Tesla says the company lacked an independent general counsel to challenge CEO Elon Musk.
  • It alleges Musk appointed lawyers who would protect him and enabled his “erratic” tweets to continue.
  • Tesla went through three general counsels in 2019, the lawsuit says.
  • See more stories on Insider’s business page.

Elon Musk was able to post “erratic” tweets about Tesla that led to government investigations because the company’s board failed to control its CEO, a lawsuit by a Tesla investor alleges.

The board had “consistently failed” to appoint an independent general counsel, investor Chase Gharrity said in his lawsuit. The company lost three general counsels in 2019, he added.

The lawsuit against both Musk and the board focuses on how Musk’s comments on Twitter allegedly violated a 2018 settlement with the Securities and Exchange Commission (SEC), which removed him from the company’s board and stipulated his tweets should be approved in advance by the company.

Musk’s violations allegedly cost the electric-vehicle company “billions of dollars in market capitalization,” Insider’s Natasha Dailey reported.

Tesla’s board should have applied tighter internal controls, including an independent general counsel who could provide advice “untainted by Musk,” the lawsuit says.

Read more: The true disrupter in the auto industry isn’t Tesla – it’s Fisker

The general counsel directs the company’s legal and policy teams and reports directly to Musk, and is supposed to provide advice on what is in Tesla’s best interest but “Musk has always sought to appoint a General Counsel that would protect his interests first and those of Tesla second,” the lawsuit says.

ABA Journal first reported on the news.

Tesla lost three general counsels in 2019

The lawsuit says that the company lost three general counsels between January and December 2019 because “none of them were able to exercise any independent advice on matters that differed from Musk’s desired outcome.”

It alleges that they were “either too close to Musk or felt they could not do their job due to interference from Musk.”

One of them held the position for only two months, and resigned in February 2019, the day after Musk tweeted that “Tesla made 0 cars in 2011, but will make around 500k in 2019,” according to the lawsuit.

Statements like this that forecast the company’s production milestones have to be pre-approved, according to the terms of the SEC deal.

But counsel for Tesla confirmed that Musk’s tweet had not been pre-approved, and Musk later posted a new tweet saying: “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.”

In December 2018, Tesla appointed Robyn Denholm, then-CFO of Australia’s largest telecoms firm Telstra, as chair of its board after Musk had to step down as part of his deal with the SEC.

But the lawsuit alleges that Denholm is “indebted” to Musk, and “has failed to curtail Musk’s wrongful conduct.”

The lawsuit refers to a CBS interview from December 2018, where Musk said he “handpicked” Denholm to succeed him as chair of the board.

He also said in that interview that he remained the company’s largest shareholder, “and I can just call for a shareholder vote and get anything done that I want.”

The lawsuit alleges that the board was “well aware that Musk was interfering with the General Counsel and dictating Tesla’s positions on issues.”

By not taking action to ensure that Tesla has an independent general counsel, the board breached its duty of loyalty, the lawsuit alleges.

Tesla did not immediately respond to Insider’s request for comment.

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SPAC returns don’t warrant the ‘hype’ they’re getting, SEC Chair says

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.   REUTERS/Jonathan Ernst/File Photo
FILE PHOTO: The U.S. Securities and Exchange Commission in Washington, D.C.

Acting US Securities and Exchange Commission Chair Allison Herren Lee on Thursday warned investors of investing in special purpose acquisition companies, or SPACs.

“Lately, we have seen more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype,” Lee said during the welcoming remarks of the Investor Advisory Committee on Thursday, Bloomberg first reported.

Regulators have begun turning their eye to the frenzy surrounding SPACs. For the entire year of 2019, 59 SPACs raised $13.6 billion, according to SPAC Analytics. The figure quadrupled in 2020 to 248 and raised $83.3 billion.

But in the third month of 2021 alone, data already show 246 SPACs that raised $76.7 billion, comprising 75% of initial public offerings.

The acting chair on Thursday also said that her agency is looking into “the structural and the disclosure issues” of SPACs.

On Wednesday, the SEC released an investor alert that specifically warned of the risks involved with celebrity-backed SPACs.

“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the agency said. “Never invest in a SPAC based solely on a celebrity’s involvement or based solely on other information you receive through social media.”

The boom in blank-check firms, shell companies seeking to merge with private companies with the intention of taking them public, has drawn the scrutiny from regulators who are growing increasingly concerned about the risks these investment vehicles pose, especially to retail investors.

The boom in SPACs has also allowed the number of public listings by companies with zero revenues valued above $1 billion to exceed what was seen in the dot-com era.

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The SEC suspends trading in 15 stocks because of suspicious activity and social-media chatter


The US Securities and Exchange Commission on Friday suspended trading in 15 companies because of “questionable trading and social media activity” as part of the agency’s ongoing effort to prevent attempts to exploit investors, especially amid market volatility.

“Today’s action follows the recent suspensions of the securities of numerous other issuers, many of which may also have been targets of apparent social media attempts to artificially inflate their stock price,” the official release said.

According to the order, none of the companies has filed any information with the SEC or OTC Markets for over a year.

The agency suspended the following issuers:

  • Bebida Beverage Co. (BBDA)
  • Blue Sphere Corporation (BLSP)
  • Ehouse Global Inc. (EHOS)
  • Eventure Interactive Inc. (EVTI)
  • Eyes on the Go Inc. (AXCG)
  • Green Energy Enterprises Inc. (GYOG)
  • Helix Wind Corp. (HLXW)
  • International Power Group Ltd. (IPWG)
  • Marani Brands Inc. (MRIB)
  • MediaTechnics Corp. (MEDT)
  • Net Inc. (NTLK)
  • Patten Energy Solutions Group Inc. (PTTN)
  • PTA Holdings Inc. (PTAH)
  • Universal Apparel & Textile Company (DKGR)
  • Wisdom Homes of America Inc. (WOFA).

The SEC recently issued orders temporarily suspending trading in the following: 

The agency, under federal law, can suspend trading in a stock for 10 days. The SEC can also prohibit a broker-dealer from soliciting investors to trade again unless requirements are met.

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Virgin Galactic slides 6% as investors look to sell 113 million shares

spaceshiptwo unity first free flight new mexico spaceport america runway landing virgin galactic may 2020
Virgin Galactic’s SpaceShipTwo “Unity” lands on a runway at Spaceport America in New Mexico on May 1, 2020.

  • Virgin Galactic fell as much as 6% on Friday after shareholders filed to sell up to 113 million shares.
  • Shareholders aim to sell up to roughly 105 million outstanding shares of common stock and up to 8 million shares of common stock issuable upon the exercise of warrants, according to a Securities and Exchange Commission filing published Thursday.
  • The filing doesn’t specify when the selling could begin.
  • The filing comes as shares sit roughly 120% higher year-to-date.
  • Watch Virgin Galactic trade live here.

Virgin Galactic tumbled as much as 6% on Friday after shareholders moved to sell up to 113 million shares.

In a Securities and Exchange Commission filing published Thursday, stockholders announced efforts to resell up to about 105 million outstanding shares of common stock and up to 8 million shares of common stock issuable upon the exercise of warrants. Virgin Galactic won’t receive any of the proceeds from the sale. The filing doesn’t specify when the selling could begin.

The resale efforts come as Virgin Galactic shares sit about 120% higher year-to-date. 

Read more: 3 ETF executives break down the various ways to invest early in the global 5G boom as it grows to unlock $13.2 trillion in value by 2035

Shares recently weathered stronger volatility as the company prepares for its first manned test flight out of Spaceport America in New Mexico. The stock rallied to a 9-month high on December 7 as investors bet on a successful test, but rocket engine issues postponed the flight and dragged shares as much as 17% lower on December 14.

“Virgin Galactic is now conducting post-flight analysis and can so far report that the onboard computer which monitors the propulsion system lost connection, triggering a fail-safe scenario that intentionally halted ignition of the rocket motor,” the company said in a statement.

It’s unclear when the test flight will be rescheduled. The initial plans to hold the test in November were already delayed once after rising COVID-19 cases in New Mexico squandered launch efforts.

Virgin Galactic closed at $25.50 on Thursday. The company has five “buy” ratings and four “hold” ratings from analysts, with a consensus price target of $24.56.

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Robinhood pays $65 million to settle SEC probe over misleading communications with customers

  • Robinhood agreed to pay $65 million to settle with the Securities and Exchange Commission over charges that the brokerage misled clients on its revenue from trades and the quality of its service.
  • The SEC alleged Robinhood made “misleading statements and omissions” about how it made money with market-makers. Robinhood, like other brokerages, sells its orders to high-speed trading firms for execution.
  • While Robinhood marketed its trades as commission-free and matching or exceeding its peers in quality, the brokerage provided inferior trade prices that cost clients tens of millions of dollars, according to a Thursday SEC press release.
  • The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed statement.
  • Visit the Business Insider homepage for more stories.

Robinhood agreed to pay $65 million to settle Securities and Exchange Commission charges that allege the discount brokerage misled customers on the quality of its trading service.

The regulator argued Robinhood made “misleading statements and omissions” about how it made money with high-speed trading companies, according to a Thursday press release. Like other brokerages, Robinhood sells its orders to trading firms for execution in a process known as “payment for order flow”.

The SEC’s order alleges the brokerage routinely provided inferior trade prices, even as Robinhood marketed its trades as commission-free and executed with quality that matched or beat peers. The second-rate prices have cost clients a total of $34.1 million even after accounting for the lack of commission fees, according to the SEC. 

Read more: Buy these 26 stocks poised to surge as China starts to dominate the electric-vehicle landscape, UBS says

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in a statement. “Brokerage firms cannot mislead customers about order execution quality.”

The settlement ends a probe that examined Robinhood’s omission of order-flow revenue on its website from 2015 to 2018. Robinhood resolved the probe without admitting or denying the SEC’s charges.

The settlement relates to practices “that do not reflect Robinhood today,” Dan Gallagher, the brokerage’s chief legal officer, said in an emailed statement.

“We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs,” he added.

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