SEC Seeks to Curb Lofty SPAC Projections

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WASHINGTON—A senior regulator warned companies going public through deals with special-purpose acquisition companies against issuing enticing but misleading statements about their growth.

The statement Thursday by John Coates, an acting director at the Securities and Exchange Commission, is a shot at the frenzy over SPACs and how their growth has enabled many startups to go public at an early stage. Some of the public companies that result from the merger, including some electric-vehicle startups, have then touted plans to reach billions of dollars in annual sales within a few years.

Special-purpose acquisition companies, or SPACs, are publicly traded shell companies formed to pursue deals. After such a firm merges with a target company, that company gets the SPAC’s spot on a stock exchange, enabling it to sell shares to the public—including to mom-and-pop investors who have rushed into the market during the rally that followed the coronavirus panic in early 2020.

SPACs have become a hot alternative to initial public offerings, the traditional way that private companies list shares for public trading. Companies doing IPOs don’t broadcast future sales or earnings estimates in their key filings.

Sales projections are particularly helpful for zero-revenue companies going public through a SPAC, as they have a short track record to show investors in an IPO.

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