[gizmo]

I'm not sure what your argument is. Sophisticated investors don't invest in obvious scams. That's tautologically true. Does that mean we should just watch and do nothing while people get scammed?

The thing is, nobody is born sophisticated and there are many ways to get hurt in financial markets in the absence of scams even if you're intelligent and do your homework.

You mention index trackers, but they are no silver bullet. Their mechanism is basically to buy more of stocks that go up, and to sell those stocks that stumble badly. The more people rely on index trackers (exchange traded or not) the more volatile they'll become, and because index funds use such a simple trading strategy it's easy to front-run or otherwise exploit them. Furthermore, index trackers depend on active investors for price discovery, and the fewer active investors you have the worse index funds will perform. Relying on a vanguard ETF might continue to work, but to assume that it will is hopelessly naïve. It's no coincidence that ETFs got so popular with interest rates at 0 and a fed that made stonks go up.

[michaelt]

> Sophisticated investors don't invest in obvious scams. That's tautologically true. Does that mean we should just watch and do nothing while people get scammed?

Imagine I buy a chainsaw which is clearly labelled as something that can cut your hands off, it's widely known and obvious to everyone that chainsaws can cut your hands off very easily, not just in the specialist financial press but also on comedy shows and from TV news pundits and loads of other sources - I'm a mentally competent adult, I'm informed about the substantial risks, I want the chainsaw anyway so I can chop down lots of trees fast. Then I chop my own hand off by mistake.

Was it society's responsibility to protect me from my own mistakes, even when I was fully informed of the risks?

[gizmo]

40% of the US workforce has a 401k

It's like giving 40% of the adult population a chainsaw that they have to use if they want to retire at a reasonable age. The outcome is predictable and they would be wise to invest in a prosthetics company.

[twic]

Does it help if we re-frame SPACs as a mechanism for transferring wealth from rich idiots to startup founders?

[fallingknife]

You can buy a 2x levered daily vix ETF. You can buy 0dte options. You can buy options on the aforementioned ETF. You can go to a casino and put all your money on the roulette wheel. What is so risky about spacs that they need special attention?

[gizmo]

Should publicly listed companies should publish their financial results every quarter? Do they have to use GAAP or can they make up their own financial metrics? What do you think would happen if we removed the regulations surrounding financial disclosure for public companies?

The questions are rhetorical. Companies will rob their shareholders blind if you let them. You can't just be "lol caveat emptor".

(Casinos also cheated players shamelessly in the good old days before regulatory oversight.)

[fallingknife]

Yeah I can just like I am about all those other great ways to lose money that I just posted.

But, I'm really not getting your point here. SPACs have to report financial results just like any other public company. They aren't allowed to commit fraud any more than any other company.

[gizmo]

SPACs are basically an incorporated bag of money, so yes, while they technically have the same disclosure requirements as any other public company the disclosures won't tell you anything. There is no Form S-1 for SPAC acquisition targets.

A conventional IPO has a number of roadblocks for fraudsters. First they have to convince a reputable investment bank (like Goldman Sachs) to take them on as a client. Then the CEO and CFO of the company have to go on a grueling road show where they talk to groups of sophisticated investors, present their business prospects, and answer difficult questions. The IPO doesn't happen if those investors aren't willing to pay up, or if the investment bank feels like management is not transparent about their realistic business prospects.

With a SPAC you have none of that. You can have a slide deck and a webcast and make outrageous claims and nobody will call you out on it. The company and SPAC sponsor can dump their shares on retail investors who think they are investing alongside the executives and SPAC sponsor, when in reality they are their exit liquidity.

[fallingknife]

Do you have an example of a SPAC where the.target was a scam? I'm not aware of any, and I follow this stuff more closely than most people.

[gizmo]

Nikola Motor went from a 34bn market cap to near bankruptcy in 2 years. Their tech was a sham and the founder got prosecuted and convicted for defrauding investors.

Lordstown Motors. Faked their order book. Blatant securities fraud.

There are many others.