SEC OIEA Cautions Against Investing in SPACs based on Celebrity Endorsements

The SEC Office of Investor Education and Advocacy ("OIEA") cautioned investors against making special purpose acquisition company ("SPAC") investments on the basis of a celebrity's involvement in the company.

In an investor alert, the OIEA warned that "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 OIEA explained that SPAC transactions, in particular, carry unique investment risks, as the economic interests of a SPAC's sponsor may not be in alignment with the economic interests of the SPAC's shareholders.

The OIEA recommended that prior to making any investment decisions, investors should:

• assess the background (e.g., registration or license status), using investor.gov, of any individual making a SPAC investment recommendation;

• educate themselves on, among other things, (i) the background, experience and financial incentives of a SPAC's sponsors, (ii) what securities a SPAC is offering, (iii) the risks associated with investment in a specific SPAC and (iv) anticipated business combinations involving a SPAC; and

• evaluate the potential costs, risks and benefits of an investment in relation to the investors' own investment goals, tolerance for risk, net worth, existing assets, debt and tax matters.