Reported by Tom McGinty, Shane Shifflett and Amrith Ramkumar

(Summary of original report featured below)

The SPAC boom has resulted in significant losses for investors, while insiders in the companies that went public through SPACs made profitable trades. Executives and early investors sold shares worth $22 billion at opportune moments before share prices plummeted. Among the beneficiaries were individuals such as Tom Gores, the owner of the Detroit Pistons, Richard Branson, the British billionaire, and Trevor Milton, the convicted founder of Nikola. These insiders acquired shares at low prices and sold them as their values soared. The Wall Street Journal analyzed insider trading disclosures associated with over 200 SPAC deals and identified the significant insider sales.

Companies that went public via SPACs have collectively lost over $100 billion in market value, with a dozen filing for bankruptcy and more than 100 experiencing cash shortages due to higher interest rates and rising costs. While executives touted SPAC mergers as a superior method of going public, the analysis suggests that it was primarily a more advantageous option for them personally. The study examined over 460 companies involved in SPAC deals and found that insiders at 232 of them had engaged in insider sales. On average, insiders sold around $22 million worth of shares each, with the majority selling shares valued at less than $100 million.

One of the notable beneficiaries was Platinum Equity, a private-equity firm that sold shares of four companies it had invested in before their SPAC-backed IPOs, generating proceeds of approximately $2.3 billion. Vertiv Holdings, a data-center infrastructure vendor owned by Platinum Equity, was one of the companies where insiders profited significantly from the sale of shares. While Platinum sold its stock, pension funds were buying, resulting in substantial losses for the pension funds when Vertiv’s share price fell dramatically. Lawsuits have been filed by pension funds alleging misleading earnings guidance.

Similarly, Richard Branson sold a large portion of his shares in Virgin Galactic before the stock’s decline, using the proceeds to support his Virgin Group businesses impacted by the pandemic. Venture capitalist Chamath Palihapitiya, known as the “SPAC King,” also made substantial profits by selling shares of Virgin Galactic. However, the SPAC market has since dried up, and the shares of companies that went public through SPACs have experienced significant declines.

Other companies where insiders made significant profits through SPAC deals include Nikola, Luminar Technologies, and Skillz. Trevor Milton, the founder of Nikola, sold approximately $374 million worth of stock, and subsequent allegations of fraud led to his resignation. He was convicted of securities fraud in October 2022. Luminar Technologies, led by CEO Austin Russell, went public through a SPAC backed by Alec Gores, the brother of Tom Gores.

Overall, the analysis highlights the substantial gains made by insiders in companies that went public through SPACs, while investors suffered significant losses. The current state of the SPAC market shows a decline, with shares of SPAC-backed companies experiencing a crash in value.

Read full report: https://www.wsj.com/articles/company-insiders-made-billions-before-spac-bust-4607a869