Special Purpose Acquisition Companies (SPACs) are essentially publicly traded shell companies that aim to acquire a private company. They raise money in public markets and then create a less regulated listing for the acquired company, circumventing the cumbersome IPO process.
Although the market is booming, raising over $160B in 2021, SPACs are also associated with fraud. Nikola (NKLA) is a famous case, ultimately settling for $125M with the US financial regulator (S.E.C.) because it misinformed investors about the true state of the business.
Now the S.E.C. comes back swinging, with tighter regulation surrounding SPACs and sometimes even classifying them as “investment companies” (with even more regulation). The question is whether this will be enough to motivate these companies to actually go for an IPO.