(Bloomberg) - A key U.S. House of Representative panel advanced legislation aimed at cracking down on special purpose acquisition companies, which has been one of the hottest markets on Wall Street in recent years.
The House Financial Services Committee, chaired by Maxine Waters, cleared a proposal on Tuesday that would ban Wall Street from marketing blank-check companies to retail investors. Another bill that was approved would largely exclude SPACs from receiving a safe harbor that reduces their regulatory liability.
SPACs, which are shell companies that list on public exchanges to raise money in order to buy profitable entities, are increasingly becoming a focus of lawmakers and regulators, including Securities and Exchange Commission Chair Gary Gensler. A top concern is that retail investors may be left holding the bag because so many SPACs have been started over the past few years that there may be few viable companies left for them to acquire.
While the legislation faces long odds in the Senate, where Democrats hold a thin majority, any momentum on Capitol Hill could embolden regulators like Gensler to act. The SEC chair has laid out a list of dozens of rule proposals, including plans to increase disclosures for SPACs and corporate diversity.
The SPAC marketing bill would only allow brokers and money managers to recommend the listings to so-called accredited investors -- clients who clear a high net-worth threshold -- with some exceptions.
SPACs have ballooned in recent years, attracting massive amounts of money from small investors who see them as a way to get in early on young companies that could be future tech stalwarts. Enthusiasm spiked again last month after former President Donald Trump’s media firm merged with a SPAC.
Some insiders have found creative ways to get rich even when public shareholders don’t -- something that’s also drawn ire from Democrats including Elizabeth Warren.
The bills are likely to advance in the House mostly on Democratic party lines, but there has been some bipartisan agreement that blank-check companies need tighter oversight. In the Senate, legislation sponsored by John Kennedy, a Republican from Louisiana, would require more disclosures for SPAC founders.
By Akayla Gardner
