One of the first big investors to take advantage of these new regulations was GKN Securities Chairman David Nussbaum. He saw an opportunity to use this structure to do “reverse mergers” with private companies that might not otherwise have access to the capital required for a traditional initial public offering (“IPO”) process. Technically, Nussbaum created companies that weren’t subject to Rule 419... but he abided by the rules and created the first real institutionally investable SPAC vehicles. The tech bubble put a damper on the creation of more SPACs, as virtually any company that wanted to go public did so via an IPO. But the collapse that followed created another opportunity. The tech bubble put a damper on the creation of more SPACs, as virtually any company that wanted to go public did so via an IPO. But the collapse that followed created another opportunity. The SEC added additional regulations in 2003, which paved the way for large banks like Citibank, Deutsche Bank, and Credit Suisse to get involved. The tremendous growth in the issuance of SPAC stocks over the past decade represents a great opportunity for investors. Over the past few years alone, we’ve started to see legendary investors like Bill Ackman, Mario Gabelli, Peter Thiel, and Howard
another company. In short, it was a way for these companies to collect money from investors with no idea how exactly they would spend the funds. They began to proliferate in the 1980s but did so in the shady “penny stock” area of the capital markets. It became a big business in the go-go ‘80s – the decade of the cutthroat Gordon Gekko from the iconic film Wall Street . In fact, from 1988 through the third quarter of 1989, an incredible 70% of penny stocks went public through blank-check companies. Often, these businesses were merely fronts for unscrupulous brokers to go out and defraud investors. They would often invest in non-viable (or even fake) private businesses and then use their high-pressure tactics to push the price higher and dump them on unwitting investors. (Think of films like Boiler Room or The Wolf of Wall Street and you’ll get the picture.) In 1990, the U.S. Securities and Exchange Commission (“SEC”) began to respond, beginning with the Penny Stock Reform Act (PSRA), which clamped down on these blank-check offerings. But in 1992, the SEC really put its foot down when it stipulated that money raised in this structure would have to be put in escrow until the company identified its investment. It also ruled that the majority of the money raised had to be used for the acquisition. Most important, investors would have the option to vote on whether to participate. These were put out in SEC Rule 419 and legitimized the once-seedy world of SPACs.
American Consequences
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