Wall Street frenzy over shell companies draws attention of SEC

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The shell companies that many private firms use to go public have been all the rage on Wall Street for more than a year. Now, just as their explosive growth shows signs of waning, they are coming under scrutiny from lawmakers and regulators.

But just as policymakers and the SEC move to investigate, the performance of these companies appears to be faltering, according to data tracking their performance on the New York Stock Exchange and Nasdaq.

"Now all of a sudden, you own a garbage company," said Andrew Park, senior policy analyst at Americans for Financial Reform, a progressive investor advocacy group thatCombined with growing animosity — particularly from private equity — toward the rigors of the traditional public offering process, interest in the companies soared along with the rising stock market. That has fed concern that there’s a bubble ready to pop in SPACs.

Companies consult with the SEC when putting together the proxy and registration statements to take the private company public, and the agency can comment on their drafts. If there are enough shareholder votes to approve the acquisition, a financial disclosure to the SEC is then required of the combined entity. But during the initial listing process, a SPAC has little to offer except the promise of big future plans.

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