fbpx

Jay-Z, Shaq And Martha Stewart Get Smoked On SPAC IPO Pump And Dumps

Jay-Z, Shaq And Martha Stewart Get Smoked On SPAC IPO Pump And Dumps

SPAC

Jay-Z, Shaq And Martha Stewart Get Smoked On SPAC IPO Pump And Dumps. Photo: Martha Stewart arrives at the Vanity Fair Oscar Party, Feb. 9, 2020, in Beverly Hills, Calif. (Photo by Evan Agostini/Invision/AP) Photo: Retired Hall of Fame basketball player Shaquille O'Neal talks to reporters in Miami, Dec. 22, 2016. (AP Photo/Alan Diaz, File) Photo: Jay-Z arrives at a special screening of "The Harder They Fall" Oct. 13, 2021, in Los Angeles. (Photo by Richard Shotwell/Invision/AP, File)

If you invested in a special-purchase acquisition company (SPAC) that was boosted by a celebrity name, you may have lost less on your investment than the SPAC category as a whole, but it still isn’t a happy scenario. Of 33 SPACs tied to famous public figures and tracked by Bloomberg, 21 posted negative returns for 2021.

SPACs are companies that have no commercial operations and are formed strictly to raise capital through an initial public offering (IPO) for the purpose of later acquiring or merging with an existing and/or yet-to-be-determined company, according to Investopedia. Also known as “blank check companies,” SPACs have been around for decades, but became popular in recent years. Two SPACs came to market in 2010. By comparison, in just the first quarter of 2021, a record $96 billion was raised from 295 newly formed SPACs.

On average, SPACS tied to celebrity names in 2021 lost 11 percent of value through Dec. 13. The SPAC linked to Jay-Z’s cannabis-focused The Parent Co. had the worst performance of the bunch with an 84-percent drop, Bloomberg reported. Only two celebrity-linked SPACS gained more than 10 percent, lagging behind the S&P 500’s 24 percent rally.

The SPAC for the Beachbody Company Group, which went public in June 2021 at a $2.9 billion valuation, is led by three former Disney executives and includes Shaquille O’Neal and Martin Luther King III as advisors. It has lost two thrids of its value in 2021.


Are you interested in getting smart on Life Insurance?
No Doctor Visit Required, Get Policy for as low as $30 per Month
Click here to take the next step

Ditto for AppHarvest Inc., which has Martha Stewart on its board. The company specializes in controlled-environment and hydroponically-based agriculture and was hyped as building a new future for Appalachia. It too has lost at least two-thirds of its value during 2021, according to Bloomberg.

Almost 600 new SPACS flooded the market in 2021. The De-SPAC Index, a group of 25 companies that went public by merging with a SPAC, is down more than 40 percent through Dec. 13. The IPOX SPAC Index, a basket of 50 de-SPACs and SPACs that haven’t found a partner, fell by 16 percent.

Bloomberg tracked celebrity SPACS and reported that some posted small gains or small losses. Basketball star Kevin Durant is co-CEO of Infinite Acquisition Corp., which saw a 0.6 percent gain. Mission Advancement Corp. has former NFL quarterback Colin Kaepernick as a sponsor and had a 1 percent loss. Baseball star Alex Rodriguez heads Slam Corp, which saw a 2.5% dip.

The Securities and Exchange Commission put out a bulletin in March warning investors about celebrity SPACs. “It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the SEC said. “Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss.”

A-listers may attract attention for a blank check company but there’s no guarantee of happy returns.

“Celebrities are eye candy,” said Matt Tuttle, whose Tuttle Capital Management runs SPAC-holding exchange-traded funds and companies they’ve merged with. “At some point these companies need to deliver on a real mission, and it becomes less about the marketing and more about the strategy.”

A pump and dump is a manipulative scheme that tries to boost the price of a stock or security through fake recommendations. These recommendations are based on false, misleading, or exaggerated statements. The perpetrators of a pump-and-dump already have an established position in the company’s stock and will sell their positions after the hype has led to a higher share price — an illegal based on securities law that can result in heavy fines.

Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?