The U.S. Securities and Exchange Commission (SEC) cautioned investors on Wednesday about buying shares of so-called special purpose acquisition companies only because they are backed by celebrities, including movie stars and athletes.
Special purpose acquisition companies, or SPACs, are shell companies which raise funds to acquire a private entity with the aim of taking it public, allowing such companies to sidestep a traditional IPO to enter public markets.
The SEC said a celebrity endorsement of a SPAC does not necessarily make it a safe bet for investors. Celebrities, like others, can be enticed into a risky investment, but they may be better able to sustain the risk of losses, the securities regulator added.
“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 SEC said. (bit.ly/3bxVZyM)
The recent SPAC frenzy has attracted the attention of a number of mainstream celebrity figures such as rap star Jay-Z, tennis legend Serena Williams and National Basketball Association Hall of Famer Shaquille O’Neal who have either sponsored their own blank-check firms or joined the boards of other SPACs.