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SEC opens inquiry into Wall Street’s blank check IPO frenzy

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The Securities and Exchange Commission has opened an inquiry into Wall Street’s blank check acquisition frenzy and is seeking information on how underwriters are managing the risks involved, said four people with direct knowledge of the matter.

The SEC in recent days sent letters to Wall Street banks seeking information on their special purpose acquisition company, or SPAC, dealings, the four people said.

SPACs are shell companies that raise funds via a listing to acquire a private company with the purpose of taking it public, allowing such targets to sidestep a traditional initial public offering.

The SEC, which declined to comment for this story, has previously said it was monitoring the SPAC boom, but the letters are the strongest sign yet that it is stepping up scrutiny of such deals and the Wall Street banks that underwrite them.

In the letters, the SEC asked the banks to provide the information voluntarily and, as such, did not rise to the level of a formal investigative demand, two of the sources said.

However, one of those two people said letters were sent by the SEC’s enforcement division, suggesting they may be a precursor to a formal investigation.

This person said the SEC wanted information on SPAC deal fees, volumes, and what controls banks have in place to police the deals internally. The second above source said the SEC asked questions relating to compliance, reporting and internal controls.

Wall Street’s biggest gold rush of recent years, SPACs have surged globally to a record $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed.

The boom has been fueled in part by easy monetary conditions as central banks have pumped cash into pandemic-hit economies, while the SPAC structure provides startups with an easier path to go public with less regulatory scrutiny than the traditional IPO route.

But the frenzy has started to encounter greater skepticism among investors, with first-day trading share price jumps for SPACs fading in March, and has also caught the eye of regulators.

This month, the SEC warned investors against buying into SPACs based on celebrity endorsements and said it was closely watching SPAC disclosures and other “structural” SPAC issues.

The SEC has also scrutinized some companies that went public via SPAC deals, including electric vehicle-makers Lordstown Motors, Nikola and Clover Health Investments, the companies have disclosed.

Investors have sued eight companies that combined with SPACs in the first quarter of 2021, according to data compiled by Stanford University. Some of the lawsuits allege the SPACs and their sponsors, who reap huge paydays once a SPAC combines with its target, hid weaknesses ahead of the transactions.

The SEC may be worried about the depth of due diligence SPACs perform before acquiring assets, and whether huge payouts are fully disclosed to investors, said a third source.

Another potential concern is the heightened risk of insider trading between when a SPAC goes public and when it announces its acquisition target, the second source added.

“Wall Street’s biggest banks are being asked: what’s going on?” the person said.

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Glasses retailer Warby Parker eyeing IPO as soon as this year

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Hipster glasses retailer Warby Parker is eyeing an initial public offering.

The 11-year-old business, which started out as an e-tailer before rolling out some 130 stores across the US, is considering an IPO as early as this year, Bloomberg reported on Wednesday.

The New York-based company has amassed a huge customer following by offering less expensive prescription glasses. Warby Parker raised $120 million in its most recent funding round giving it a $3 billion valuation, according to the report.

“We’ve always explored various financing opportunities in both the debt and equity markets,” the company said in a statement. “To date, we have successfully and deliberately raised money within the private market on favorable terms and have plenty of cash on our balance sheet. We’ll continue to make strategic decisions in line with our commitment to sustainable growth.”

Founded by college buddies Dave Gilboa and Neil Blumenthal, who met at the Wharton School at the University of Pennsylvania, Warby Parker has attracted some large investors including the mutual fund company, T. Rowe Price.

It turned it first profit in 2018, Gilboa told The New York Times at the time.

Warby Parker co-founder Neil Blumenthal
Warby Parker co-founder Neil Blumenthal
Brian Ach/Getty Images

Customers can get prescriptions through their apps on their smartphones and use cameras to pick out frames. The company also has an optical lab in Sloatsburg, NY where it produces lenses.

While Warby Parker is not the least expensive option, it beats Costco in a recent comparison with Costco charging as little a $126 for a pair of prescription glasses compared with Warby Parker’s least expensive pair at $95.

“As consumer walk into a LensCrafters or Sunglass Hut, they see 50 different brands of glasses but don’t realize that all those brands are owned by the same company that owns the store that they’re standing in, that probably owns the vision insurance plan they’r using to pay for those glasses,” Gilboa said in a recent CNBC interview.

“And so, it’s no surprise that a lot of those glasses are marked up 10 to 20 times what they cost to manufacture,” he said.

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Dogecoin hits new high boosted by DogeDay hashtags

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Dogecoin prices hit an all-time high on Tuesday, with a market capitalization above $50 billion, after social media fans used hashtags to fuel a rally in the meme-based cryptocurrency.

An 8,000 percent price surge this year has seen Dogecoin, which was launched as a satirical critique of 2013′s cryptocurrency frenzy, overtake more widely-used cryptocurrencies like Tether to become the fifth-largest coin.

While Dogecoin, whose logo features a Shiba Inu dog at the center of the meme, a represents only a fraction of bitcoin’s $1 trillion value, it can be traded on crypto exchanges and more popular mainstream trading apps.

“The Doge rally represents an interesting convergence,” said Diana Biggs, CEO of crypto start-up Valour, after Dogecoin’s price soared by more than five-fold in the last week to a record 42 cents, according to CoinMarketCap.

“A meme coin created as a joke for early crypto adopters whose community found that kind of thing to be fun, with now a new generation of retail investors for whom memes are a native language,” Biggs added.

Dogecoin fans used the hashtags #DogeDay and #DogeDay420 to post memes, messages and videos on Twitter, Reddit and TikTok, referring to the informal April 20 holiday to celebrate cannabis which is marked by smoke-ins and street parties.

“GIMME THAT DOGECOIN LAMBO!!! #DogeDay” one tweeted, referring to the Lamborghini car popular in crypto culture.

Dogecoin’s rise has come amid a surge in online trading of stocks and crypto by retail investors, stuck at home with extra cash because of the COVID-19 pandemic. It has not coincided with a growth in usage of the coin for payments or in commerce.

The same trend has spurred a boom in usage of online trading apps like Robinhood, and also fueled the social-media driven rally in GameStop stock that pitted retail investors against hedge funds earlier this year.

“It’s an extension of the same phenomenon that has led Tesla stock to be valued well beyond fundamentals and more recently to the GME (GameStop) short squeeze,” said Ajit Tripathi, head of institutional business at decentralised finance startup Aave.

Like other cryptocurrencies, Dogecoin’s price is heavily influenced by social media users including Tesla chief Elon Musk, whose tweets on the cryptocurrency in February sent its price soaring over 60 percent.

“If this goes as planned and everybody including Mr. Musk go ahead and just pour money into Doge on April 20th all at once Doge will reach prices that originally were not even conceptual,” a TikTok user said in a video promoting the coin.



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Amazon is opening a beauty salon in London

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Amazon is opening a hair salon in London — its latest odd lurch into new businesses as the pandemic continues to fuel the e-commerce giant’s torrid growth.

The Amazon Salon, unveiled in a Tuesday blog post, will occupy a two-story, 1,500-square-foot space in Spitalfields, a trendy neighborhood in East London that is also home to Amazon’s UK headquarters, which houses about 5,000 employees.

Indeed, the new salon, which will be open seven days a week, initially will only cater to Amazon workers. Members of the public will be able to make bookings in “the coming weeks” by calling, emailing or visiting the salon, the company says.

“This will be an experiential venue where we showcase new products and technology,” Amazon said in a blog post on Tuesday, adding that there are no plans to open other salons.

That will include making Amazon’s Fire tablets available at each station, allowing customers to use augmented reality technology to see what they look like as a platinum blonde, brunette or with highlights, the company said.

The salon is located at Amazon’s UK headquarters, which houses about 5,000 employees.
The salon is located at Amazon’s UK headquarters, which houses about 5,000 employees.
Amazon

The salon will also test new “point-and-learn” technology, where customers can point at a product they are interested in on a display shelf and the relevant information, including brand videos and educational content, will appear on a display screen.

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