Syed Rahman explains why a high-profile US case underlines the risks surrounding SPACs

The US Securities and Exchange Commission (SEC) fined the space transportation company Momentus and its former chief executive for misleading investors. The special purpose acquisition company (SPAC) that agreed a deal to take Momentus public was also charged.

It was alleged that investors were told that Momentus had successfully tested its technology in space. Yet this was untrue – the tests had been far from successful.

Rahman Ravelli’s Syed Rahman viewed the case as a clear indicator of the risks that are associated with SPACs. He wrote an article about the pitfalls that may face those who invest in them.

SPACs have become attractive to investors as they can be created specifically to acquire another business and can provide quicker returns than a typical company acquisition.

But in his piece, Syed emphasises that there are no guaranteed gains with SPACs. Investors often receive little information before committing money to a SPAC. He says that due diligence is critical when it comes to assessing and minimising the investment risks associated with SPACs.

While SPACs have their supporters – and are increasing in popularity – Syed makes it clear that they cannot be viewed as a failsafe means of making financial gains.

Syed's article featured on The World Financial Review.