Lordstown Motors Corp. headquarters in Lordstown, Ohio.
Photo:
Dustin Franz/Bloomberg News
Regarding your editorial “The Making of an Electric-Vehicle Fiasco” (June 15): The Journal has written often and well about the dangers of special-purpose acquisition companies, or SPACs, including the most recent Lordstown debacle. Misalignment of incentives between sponsors and investors is a rodeo we’ve seen before. See the sale of collateralized-debt obligations and mortgage portfolios leading up to the 2008 crisis, etc.
Apparently, SPAC promoters receive warrants or deeply discounted stock amounting to 20% of the value of the SPAC at the time of the merger. The particle physicists of Wall Street find various ways to shake and bake financial products, and these change over time. However, there are two simple questions to ask promoters, and they never change: “Do you make money before I do?” and “How much are you putting in?” Absent good answers to those questions, I’d suggest investing in the S&P 500.
There’s also a lesson here for the SEC: SPACs are de facto IPOs and should be regulated with the same rigor.
Sam Kaywood Jr.
Johns Creek, Ga.
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