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The SEC is eyeing potentially misleading profit forecasts from SPAC sponsors and is seeking clarification. An official warned Thursday that the agency may enact a future regulation to contain them.

Special acquisition companies called SPACs or blank check funds are a hot ticket item on Wall Street.

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The investments are like quasi-IPOs. A publicly traded Shell company uses investor money to buy or merge with a private company, usually within two years. In this way, the private company is floated on the stock exchange and offers an alternative to a traditional IPO.

The use and popularity of SPAC has grown dramatically in the past six months, John Coates, acting director of corporate finance for the Securities and Exchange Commission, said in a statement Thursday.

“There is an unprecedented test associated with the unprecedented increase, and new problems with standard and innovative SPAC structures continue to emerge,” said Coates.

For one, the SEC is monitoring filings and disclosures by SPACs and their private targets, Coates said.

Some believe the current law allows investments to bypass some of the disclosure requirements of the traditional IPO process.

Primarily, some fear that SPAC sponsors and their acquisition goals pose less legal risk to presenting high profit and valuation forecasts. For example, misleading information about future earnings estimates can in turn attract investors.

“These claims raise significant investor protection questions,” said Coates.

However, such claims may not provide an accurate reading of current securities law, he added.

“Any simple claim about reduced liability for SPAC participants is exaggerated at best and potentially seriously misleading at worst,” said Coates.

The public could benefit from greater clarity on the legal requirements for disclosure of SPAC, Coates said. He suggested that the SEC might make a rule or provide guidance on the matter.