SEC Official Warns on Growth of Blank-Check Firms

WASHINGTON—A top securities regulator warned about the surge in fundraising by blank-check companies known as special-purpose acquisition companies.

Speaking at a legal conference Wednesday, Securities and Exchange Commission official John Coates said there are “some significant and yet undiscovered issues” with SPACs, which allow private companies to go public with a structure that offers outsize potential rewards to backers while bypassing some safeguards of a traditional initial public offering.

Those issues are “not something that’s going to stop them by any means, but they are relatively as yet incompletely worked through mechanisms, despite the fact they have been around for a while,” said Mr. Coates, who is acting director of the SEC’s Corporation Finance division.

SPACs are shell companies that list on a stock exchange to merge with a private firm and take it public. The private company then gets the SPAC’s place in the stock market.

SPACs have become hot investments for everyone from hedge funds to individual investors. Well-known SPAC creators include investors such as Bill Foley, former chief executive officer of Fidelity National Financial Inc., and former Citigroup Inc. executive Michael Klein.