March 30, 2022
Chairman Gensler and Commissioners Peirce, Crenshaw and Lee,
My name is Nick Wilson and I am a retail investor who is not a financial professional or affiliated with any institutions, SPACs or public companies. I have been investing in SPACs for over two years, and have been almost exclusively investing in SPAC warrants since Summer 2020. During that time I was a moderator on Reddit's r/SPACs, and am a moderator on the largest retail SPAC Discord, the International SPAC Station.
While SPACs indeed are complex and have many problems, I beg the SEC to stop changing the fundamental rules on existing SPACs that already IPO'd under existing rules and frameworks and creating more confusing for retail investors who invested based on those frameworks. I am also of the opinion that the Commission is taking a condescending view of retail investors and our ability to comprehend documents, projections and risk, and to adapt to changing market conditions.
If you want to change the rules for newly IPO'd SPACs, that would be a different situation. However, you keep changing the rules on existing SPACs, switching warrants from equities to liabilities, threatening new regulations and changing the documentation so things grind to a halt and deals fall through - and thus keep hurting retail investors.
It feels like a late vendetta by the SEC in response to the bubble conditions from over a year ago.
While I think disclosures can certainly be improved, and I would often like more information about how the parties reached those projections and consistent terminology, most of what we need to know to make investing decisions is already publicly available.
We know these are projections -- and can reach our own conclusions about their believability -- and these projections are heavy with disclaimers to protect sponsors from future liability for their inaccuracy already.
The fact that SPACs can lay out the future vision of their targets for investors is part of their fundamental competitive advantage. They can bring less mature companies public sooner and raise capital to reach eventual maturity. Being able to participate in that growth is part of why SPACs carried such appeal to retail investors in the first place.
As a warrants investor, I am extremely concerned changing this advantage midstream and increasing sponsor liability will lead to more liquidations and cancellations, and fewer deals getting completed.
My question for the Committee is this: why now?
In the current market, SPAC commons are mostly below NAV, meaning they are essentially no-risk investments - since investors can redeem and get their money back at the NAV at merger. They have been one of the safest and least volatile places to be during the recent market downturn. A year ago, during the bubble it was a different situation, but retail demand for SPAC commons right now is so low in the first place and most shares are getting redeemed at merger, that I'm not sure who you think you are protecting?
Because of the lack of retail and Wall Street demand for SPAC commons, many retail investors like me still seeking disproportionate upside from SPACs have moved into warrants, where long-term value is contingent on deals getting completed in the first place.
Since the SEC threatened new regulations last year, SPAC deals have slowed down drastically, and all pre-deal warrant averages have come down substantially with increasing fear of liquidation.
You keep hurting middle class investors like me by creating an environment of constant regulatory uncertainty, and now are threatening to take away SPACs' competitive advantage. In essence you are helping protect no one by making SPACs harder to operate and complete deals.
While I appreciate the concern that retail investors may be unclear about many aspects of these mergers and I do want the SEC to strongly enforce against fraud and insider trading, I would also appreciate if you would be concerned for how much damage the SEC has done to retail portfolios like mine by creating an environment of constant regulatory uncertainty.
We all invest knowing there are risks for doing so, and we know that projections are estimates, not promises. But we can't invest as well when the overarching rules keep getting changed midstream.
Please reject these proposals, which not only do not protect - but actually hurt - retail investors.
Thank you for your consideration.
Nick Wilson