The company that plans to merge with former president Donald Trump’s social media company has received subpoenas from a federal grand jury, a setback that could complicate Trump’s plans to bring his company to the public markets.
A SPAC is a shell company that is set up to take a private company public by merging with it. They are called “blank check” companies because investors can purchase shares without knowing what business the SPAC will eventually acquire.While SPACs in their current form have been around since the early 2000s, they have exploded in popularity in recent years, drawing in celebrities such as Shaquille O’Neal, Jay-Z and Trump.
The deals had become an alternative way to reach the public markets. But SPACs have been hit especially hard amid the recent market downturn, as investors turn away from riskier bets and as regulators have proposed new rules to enhance disclosure requirements and investor protections. One index that tracks SPAC performance, the De-SPAC Index, has fallen more than 60 percent for the year, compared with the benchmark S&P 500 Index’s drop of roughly 19 percent.Before Wall Street soured on SPACs, the investment vehicles drew immense interest because they can save companies and investors time and money. Stakeholders can bypass the traditional initial public offering process and strike quickly, taking advantage of dramatic upward swings in the market.
After the initial economic shock at the outset of the pandemic, an investment frenzy in SPACs took off, drawing in hedge funds and retail investors scrambling for the next moneymaker amid the financial chaos spawned by the public health crisis.
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