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How the biggest players in the SPAC frenzy got schooled

In the world of blank-check IPOs, there are the class leaders—and the regulators and short-sellers starting to put them back in their seats.

How the biggest players in the SPAC frenzy got schooled
[Illustration: Maxim Usik]

The frenzy around special purpose acquisition companies (SPACs)—corporate shells that raise money to acquire a private business, help it go public, and avoid the regulatory requirements of a traditional IPO—may have peaked in January, when nearly $26 billion poured in. With the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) scrutinizing them, SPAC creation slowed, but there are reportedly about 400 in vitro. Will SPACs continue to be the route for speculative electric car, space, and synthetic biology ventures? These people’s actions will help decide that.

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Bill Ackman

After amassing a $4 billion SPAC in 2020, the legendary investor declared his intention to use it to buy 10% of Universal Music Group last June. The SEC expressed concerns over whether this deal qualified as a SPAC at all. Ackman abandoned the SPAC route and invested via his hedge fund instead.

Michael Klein

The former Citi banker’s Churchill Capital—named for his idol, Winston—has the distinction of executing 2020’s biggest SPAC, an $11 billion deal to take healthcare services firm MultiPlan public. But short-seller Muddy Waters Capital blitzed Klein by arguing that MultiPlan was overvalued and Klein—who earns roughly 20% of a deal’s total, the standard for SPAC sponsors—overpaid.

Chamath Palihapitiya

The self-styled Silicon Valley populist billionaire initiated SPAC fever in 2017, eventually bringing Virgin Galactic public. But investors frowned when he sold his personal stake in March, and short-seller Hindenburg Research claimed his third SPAC, Clover Health, misled the investors when it failed to disclose a DOJ inquiry.

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Celebrities

Dozens of sports and entertainment stars, including Serena Williams, Alex Rodriguez, and Ciara, have glommed onto SPACs as sponsors and advisers. In March, the SEC released an investor alert warning consumers against investing in a SPAC just because it’s endorsed by a celebrity. The number of new SPACs dropped precipitously thereafter.

Trevor Milton

Nikola CEO Trevor Milton hyped his would-be Tesla rival up to a $26 billion market cap by June 2020, because SPACs grant companies latitude with future projections. Alas, Milton’s paradise was lost after Hindenburg alleged that Nikola faked the demo video for its semitruck. The revelation rolled its stock downhill, Milton resigned, and the SEC indicted him for securities fraud.

Stephen Burns

The CEO of Lords­town Motors wrapped his EV vision in the flag by promising American jobs in Lordstown, Ohio, former site of a renowned General Motors plant. Burns’s dream ended abruptly when Hindenburg (oh, the humanity) claimed Lordstown misled investors by fabricating preorders for its EV truck, whose prototype didn’t work. Burns and his CFO resigned.

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Gary Gensler

The SEC chair has tamped down enthusiasm for SPACs: In May, he said that the agency is devoting significant resources to addressing emerging issues related to SPACs and considering new investor protections. Only 10 deals were announced in July, a 90% drop from 2021’s peak in early March.

Nathan Anderson

The head of Hindenburg Research has humbled Nikola and Lordstown, and he took on Clover Health without even holding the stock. Anderson has continued to challenge companies taken public via SPAC, calling out their outsize promises (plastics recycler PureCycle) and business dealings (DraftKings’ subsidiary SBTech), though with less dramatic results.

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