There's nothing illegal about creating a public company, no matter how stupid it is, if your finances are above broad. Financially, SPACs are as simple as a public company gets: practically take people's money and hold them in a big pot.
There's also nothing illegal about a public company acquiring or merging with a private one, although I believe this is the Achilles' heel of our current legal system: mergers generally don't require the same level of minute disclosures an IPO does.
Clearly, this is a regulatory arbitrage, just like a lot of our "innovations" in the past decade, fueled by a near zero interest rate. The way to move forward would be to take another look at our regulation and close the arbitrage. Otherwise, next time there's a low interest rate environment, I can guarantee you there will be another garbage SPAC boom.
(There's also a good argument that IPO requirements are too extreme, as demonstrated by many companies that would previously have gone public, staying private. Perhaps the right trade-off is to make both IPO and SPAC processes have a more well considered, moderate set of requirements.)
> way for investors to dump a company with no real business model, yet, onto the unsuspecting public.
The "unsuspecting public" are people who bought a stock with full knowledge that they don't know what they'll end up owning. The "unsuspecting public" is a mischaracterization, people who invest in SPACs aren't doing so unknowingly.
SPACs aren't automatically part of the typical portfolio (like, say, the S&P 500). People who own SPACs went out of their way to buy them.
I completely agree with your other points, but we have to acknowledge that the victims of a poorly executed SPAC merger isn't your blue collar worker, it's people who sought out a highly speculative asset, and that's what a SPAC is.
A SPAC is effectively (and I'm simplifying here for brevity) like a Private Equity fund. However, those are limited to accredited investors, and the general public can't buy into them.
SPACs could (should?) be limited in the same form. By prohibiting them from listing, it's the smallest regulatory change that solves the issue of unknowing investors buying something speculative without knowing it's true risks.
And you've killed SPAC as a concept.
To me this is one of the key differences between sophisticated and unsophisticated investors, and knowing how to do due diligence is really key.
OK - but how are you going to discriminate between SPACs and other c-corps? I don't think a porn style "I know it when I see it" test is going to work here.
But like another poster observed, not letting a SPAC list completely obviates the sole purpose of a SPAC (which I personally think would be an excellent outcome).
[0] - https://www.sec.gov/corpfin/disclosure-special-purpose-acqui...
How exactly do you intend to do that? Remember the law is like code, not something you can rearrange on a whim.
There's no legal distinction of a SPAC. It's just a company like any other listing on the public markets. The better solution is to increase reporting and listing requirements for the companies they're merging with. The merger process should become exactly as it is with traditional IPOs; S-1 filings, roadshows, lockup periods, etc.
It's easy to do.
Could you share the explanation in layman’s terms?