The SPAC Trap: How SPACs Disable Indirect Investor Protection

Yale Journal on Regulation, Forthcoming

Harvard Law School John M. Olin Center Discussion Paper No. 1080 (2022)

10 Pages Posted: 20 Jun 2022

See all articles by Holger Spamann

Holger Spamann

Harvard Law School; ECGI

Hao Guo

Harvard Law School

Date Written: June 12, 2022

Abstract

Indirect investor protection (Spamann 2022) makes investment in most public securities safe even without understanding their terms or the underlying business. SPACs disable this protection by offering two alternative payoffs from the same security, the SPAC share, in the de-SPAC: the redemption value, or a share in the post-de-SPAC entity. The former is usually higher and chosen by sophisticated repeat players, while unsophisticated investors elect the latter or receive it by default (Klausner et al. 2022). Before the de-SPAC, the SPAC share price reflects the higher payoff, such that unsophisticated investors systematically overpay. This overpayment is captured, directly or indirectly, by SPAC sponsors and IPO investors. This allows the latter to make money from SPACs even if SPACs create negative social value.

Keywords: SPAC, indirect investor protection

JEL Classification: G18, K22

Suggested Citation

Spamann, Holger and Guo, Hao, The SPAC Trap: How SPACs Disable Indirect Investor Protection (June 12, 2022). Yale Journal on Regulation, Forthcoming, Harvard Law School John M. Olin Center Discussion Paper No. 1080 (2022), Available at SSRN: https://ssrn.com/abstract=4135558 or http://dx.doi.org/10.2139/ssrn.4135558

Holger Spamann (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hao Guo

Harvard Law School ( email )

United States

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