[_ea1k]

> One of the worst aspects of a SPAC is that it's essentially a grab-bag purchase since even once you know the company being bought, you still don't initially know whether it's a good investment.

Yeah, and you also don't really know if it will go through. What happens when a SPAC claims to be merging with the company but the deal never materializes?

It feels like a weird system of gambling instead of investing in that sense.

[nostrademons]

SPACs usually have a clause in them that the money is refunded to the shareholders if it fails to complete an acquisition by a certain target date. The expenses of running the fund come out of the initial investment put up by the SPAC's sponsors, i.e. the folks who create the SPAC make the public investors whole and eat the losses themselves. This is why there's a de facto floor of $10 on pre-merger SPAC stock prices. In theory, it's a risk-less investment.

In practice, the SPAC sponsor ends up acquiring a sub-par company and taking it public regardless. If they don't, they lose all of their initial investment, yet if they do, they have a chance of unloading the shares on the public markets before anyone finds out. I saw a bunch of these when combing though SPAC lists - funds that had < 6 months left on the clock take a chain of nursing homes public, or a chain of used-car dealerships, or other companies that had no business being on the public markets. Then there's a very strong incentive to juice the financials and hide the skeletons so they can get the merger past shareholder vote. Hence the reputation SPACs are getting as vehicles for fraud.

[_ea1k]

Oh, I hadn't realized that. I think the cases that I was thinking of were just rumors of future SPACs before an official confirmation: https://investorplace.com/2021/02/cciv-stock-no-imminent-luc...

It seems like this leaves a lot of room for bad behavior by insiders.