SPACS tumble on report that US regulator has opened inquiry into frenzy

[WASHINGTON] Blank-cheque companies tumbled on a report that US regulators are scrutinizing one of the hottest corners of market.

The IPOX SPAC Index, which tracks special-purpose acquisition companies, slumped as much as 1.8 per cent on Thursday, extending its selloff into an eighth consecutive day. The gauge is still up 45 per cent since the end of July, compared with a gain of 20 per cent for the S&P 500 Index.

Officials at major firms are anticipating letters from regulators asking about the potential dangers of underwriting a deluge of deals from SPACs, according to two people familiar with the matter. For now, the inquiry appears to be mostly fact-finding, but it could turn into something more formal depending on what regulators uncover, one of the people said, asking not to be identified because the matter is private. Reuters previously reported the SEC's inquiries into special purpose acquisition companies.

Regulators appear to be turning up the heat after a frenzy that has attracted the likes of celebrities including Shaquille O'Neal, Colin Kaepernick, and Alex Rodriguez as well as a who's who of Wall Street titans. In the past 12 months, more than 700 SPACs have flocked to New York exchanges, seeking to raise about US$227 billion, according to data compiled by Bloomberg.

"There have been too many new issue listings and the market simply cannot handle the overflow," said Christopher Matthaei, a partner at Elevation Securities, which conducts SPAC research.

BLOOMBERG