Special purpose acquisition companies, or SPACs, have made a rapid and dangerous return to the forefront of investing. Once shunned as the successor to blind pools — the investment vehicle used by ‘Wolf of Wall Street’ Jordan Belfort to defraud thousands of investors — SPAC mergers have grown increasingly popular as an alternative to direct listings and traditional IPOs.
While today’s SPACs are subject to stricter regulations and greater investor protections than their 1980s precursors, many operate with the same core premise: convincing retail investors to buy into get-rich-quick schemes by exaggerating gains and downplaying risks. A new generation of investors, courted by commission-free investment apps, dubious ‘buy’ ratings, and a small chance at big returns, are rushing headfirst into these offerings without a full appreciation of their risks. United Wholesale Mortgage’s $16 billion IPO today, the largest IPO to have ever originated from a SPAC deal, epitomizes the growing danger of Wall Street’s new favorite money printer.
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