The SPAC Phenomenon: A Transaction of Reinvention and the SEC's Reluctant Hand Sabrina Feng

Abstract

SPACs (Special Purpose Acquisition Companies) hit an all-time high in recent years as a popular vehicle for taking companies public. These transactions promised investors early access to high-growth companies and private firms seeking capital the speed and flexibility to bypass the rigors of traditional IPOs. Yet, years later, de-SPAC companies are widely underperforming, with poor returns and mounting bankruptcies. Beneath this innovation lies a fundamental regulatory challenge: the SPAC structure exploits gaps in securities law to create a transaction rife with misaligned incentives.

This Note argues that the SEC’s disclosure-based regulatory regime is nonresponsive to the structural flaws embedded in the SPAC lifecycle. By analyzing the legal origins of SPACs and examining the incentive dynamics of Sponsors, directors, PIPEs, and investors, this Note shows that SPACs operate more as tool for capital extraction than for genuine value creation. SPACs are emblematic of a broader trend in financial innovation, where legal engineering and disclosure regimes mask transactions that primarily benefit insiders at the expense of public investors and market integrity. This Note calls for more thoughtful deal-making and policymaking from regulators, legal, and financial professionals alike.