This video can be viewed at the below link.[1]

So, what in the world is a “SPAC,” anyway?

Suppose a group of strangers came up to you and said: “I have a company. It doesn’t do much of anything, but sometime in the next two years, we’ll merge with another company. I don’t know what that company is yet.”

Would you invest in the strangers’ company?

What if I told you that, if the strangers complete a merger, they get to pocket 20 percent of your investment?

That’s essentially what a special purpose acquisition company — a SPAC — does. They are blank-check companies that raise money from the public through initial public offerings. They generally have two years to find and merge with a target company.

Once they find a target company, SPACs often raise more money through transactions known as private investments in public equity, or “PIPEs.” These deals give new investors — mostly big institutions, not like you and me — an opportunity to put money into the target.

But these new investors, the “PIPE” investors, they often can buy those shares at a discount to what the share price might be after the target merger. So, they receive a benefit that’s not available to ordinary investors.

The result? PIPE investors often get a better deal than you, and the value of your investment may be further diluted.

Thus, beware: there are lots of costs that regular investors are bearing — whether it’s that 20 percent sponsor fees, the dilution from the PIPE investors, and fees for the bankers and financial advisers. It may be that those fees are coming out of the retail public’s investment dollars.

We need to make sure that investors in SPACs are being protected.

Look, you as an investor get to decide about where to put your money — but companies raising money from the public have to provide adequate disclosures. I think we can enhance the disclosures that companies raising money via SPACs make.

I’ve asked staff for recommendations about how we might update our rules so that investors are better informed about the fees, costs, the conflicts that may exist with these SPACs.

We’ll also work to hold bad actors accountable and keep a close eye on all the parties in these transactions.

Because at the end of the day, we need to ensure that investors are protected.