image of an electric vehicle plugged in and chargingWe wrote about Special Purpose Acquisition Companies (SPACs) in a Stoll Berne Investor Blog post more than a year ago. At that time, SPACs were attracting attention as a way for businesses to raise funds in public markets without having to use a traditional IPO that would value the company through market-based price discovery. In a SPAC offering, the people behind it are responsible for deciding how to value the operating company and how much the SPAC will pay for it. We cited a Wall Street Journal article that explained SPACs had significantly underperformed companies that went public using a traditional IPO. The recent announcement by Electric Last Mile Solutions that it will file for bankruptcy is another example of dangers for investors in SPACs.

Electric Last Mile Solutions trades on the Nasdaq under the ticker symbol ELMS. ELMS describes itself as a commercial electric vehicle solutions company, focusing on designing, engineering, manufacturing, and customizing electric last mile delivery and utility vehicles. ELMS began trading publicly only a year ago, even ringing the opening bell on the Nasdaq on July 12, 2021.  

In a June 12, 2022, announcement about the bankruptcy, ELMS recounted the February 2022 resignations of former CEO Jim Taylor and founder and Executive Chairman Jason Luo. The announcement included that an investigation by ELMS’ board led to the resignations. ELMS “was forced to withdraw financial guidance and declare the Company’s past financial statements unreliable.” Further, “[t]he compound effect of these events, along with a pending SEC investigation initiated this year, made it extremely challenging to secure a new auditor and attract additional funding.” 

According to an article on, the board’s investigation found that “prior to the SPAC merger, ‘certain executives’ purchased equity in the company at substantial discounts to market value without obtaining an independent valuation.”’s article linked to a report by short-seller Fuzzy Panda Research, warning about what Fuzzy Panda Research believed to be misleading statements to investors by the company. For example, Fuzzy Panda Research asserted that ELMS “falsely claimed that their vehicles are ‘produced’ and ‘manufactured’ in the USA.” Fuzzy Panda Research described how ELMS would import vehicles made in China and then change the logo.

ELMS’ internal investigation and bankruptcy are good examples of the dangers of investing in SPACs. The SEC discusses some of the risks, particularly involving disclosures, in its disclosure guidance for SPACs. The SEC’s guidance is a good starting point for a lawyer or investor who is looking into a SPAC.

image of calculator and spreadsheetSpecial purpose acquisition companies (“SPACs”), sometimes referred to as blank-check companies, have captured headlines and the attention of individual investors in recent months. A private company may use a SPAC to go public. By using a SPAC to go public, a company has more leeway to make optimistic predictions and forecasts than in a more regulated, traditional initial public offering. The limited regulation and freedom for a company to hype its prospects are not necessarily good for individual investors. 

In an article titled, Investors Flock to SPACs, Where Risks Lurk and Track Records Are Poor, the Wall Street Journal reported that critics are concerned that the recent interest in SPACs “could end badly for smaller investors who don’t understand the risks.” The Wall Street Journal explained SPACs that went public since 2017 on average significantly underperformed companies that went public using a traditional IPO.

The Securities and Exchange Commission issued guidance in December 2020 about SPACs. The guidance says that the “economic interests” of those behind a SPAC “often differ from the economic interests of public shareholders.” Critically, as the SEC explained, “[u]nlike the traditional IPO process where a private operating company sells its securities in a manner in which the company and its offered securities are valued through market-based price discovery, these individuals are solely responsible for deciding how to value the private operating company and how much the SPAC will pay for it.” In other words, the people behind the SPAC, who often engineer lucrative schemes for themselves to profit, decide the terms of the deal and the price.   

Among other important questions, an Individual investor considering a SPAC should understand: i) why using a SPAC is preferable to an initial public offering; ii) how and when the investor can sell and whether there will be liquidity; iii) what support and auditing is there for projected financial performance; and iv) how the sponsors, promoters, and others behind the SPAC will profit?