The SEC Dunks on Shaq

Over the last twelve months, the investing world has witnessed an endless barrage of SPACs. Everything from 23andMe to flying taxi companies have gotten in on the fun.

Yesterday the Securities and Exchange Commission came out with a stern warning — don’t buy a SPAC just because a celebrity told you to.

Not So Fast

There has been no shortage of celebrity-backed SPACs.

• Shaquille O’Neal’s Forest Road Acquisition Corp. recently announced a three-way merger with fitness player “BeachBody.”
• Alex Rodriguez has a SPAC called“Slam,” and the list goes on to include folks like Larry Kudlow and pop star Ciara.

The SEC has done its work and determined the growing trend of celebrity-endorsed SPACs is dangerous enough to issue a broad warning to investors. The SEC’s Office of Investor Education and Advocacy wrote, “Celebrities, like anyone else, can be lured into participating in a risky investment,” and they “may be better able to sustain the risk of loss.”

Importantly, as the SEC notes, celebrity sponsors may have economic arrangements that are different than the average shareholder. CNBC’s Jim Cramer may have said it best, claiming these SPACs “feel like an inside joke for the super-rich.”

the takeaway

This is hardly the first time the SEC has stepped in to warn investors in these types of situations. In the past, the SEC has ruled to force celebrities how much they are being compensated to advertise cryptocurrency initial coin offerings.