50 B.C. L. Rev. 237 (2009)
Not Guilty by Association: Why the Taint of Their Blank Check Predecessors Should Not Stunt the Growth of Modern Special Purpose Acquisition Companies

handle is hein.journals/bclr50 and id is 243 raw text is: NOT GUILTY BY ASSOCIATION: WHY THE
Abstract: During the 1980s, blank check companies were prominent
vehicles for fraud and abuse in the penny stock market. These companies
largely disappeared as a result of regulatory backlash in the 1990s, but a
new type of company with a similar structure has taken their place in the
securities market: the Special Purpose Acquisition Company (SPAC).
Much like their blank check predecessors, SPACs have no operations;
they merely issue securities with the intent of using the proceeds for
merging with or acquiring another company. Although SPACs have en-
joyed increased prominence in the market, regulators continue to view
them with considerable skepticism. In addition to promulgating regula-
tions forcing SPACs to disclose more information to potential investors,
the Securities and Exchange Commission deliberately moves slowly in
processing SPAC deals, with the hope of curbing the pace of SPAC offer-
ings. This Note argues that continuing to treat SPACs similarly to the
blank check companies of the 1980s is a misguided strategy because the
characteristics of the two, once one looks beyond their basic structure,
differ significantly This Note also emphasizes that SPACs may be the only
method of raising capital for smaller emerging companies. It thus con-
cludes that any efforts to thwart the SPAC structure itself reflect an erro-
neous attempt to protect investors, at the expense of allowing this latest
Wall Street innovation to facilitate capital formation.
On February 21, 2008, the Nasdaq Stock Market, Inc. (Nasdaq)
announced that it was proposing a change to Securities and Exchange
Commission (SEC) rules governing the listing of Special Purpose Ac-
quisition Companies (SPACs).1 Two weeks later, on March 6, the New
I Press Release, Nasdaq Stock Market, Inc., NASDAQ Proposes Listing Standards for
Acquisition Vehicles: Move Will Enhance Protection and Transparency in This Active Mar-
ket Segment (Feb. 21, 2008), available at http://ir.nasdaq.com/releasedetail.cfm?Release
ID=295473. A SPAC, often referred to as a blank check company, is a public shell com-
pany with no operating assets and no business plan. David Smith et al., Reverse Mergers and

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