Goldman Sachs has paused new Spac offerings, said people familiar with the matter, in another blow to blank-cheque companies as regulators close in on the once-booming market.

The move marks a retreat for the Wall Street investment bank, which last year ranked as the second-biggest underwriter for special purpose acquisition companies, helping sponsors raise almost $16bn, according to data from Refinitiv.

Goldman will also stop working with a majority of the Spacs that it helped take public, one of the people added.

Spacs are shell companies that raise money from investors and list on the stock market. Their sponsors then search for a private company to take public through a merger. The vehicles experienced a surge of popularity in 2020, but have since attracted regulatory scrutiny.

The US Securities and Exchange Commission in March proposed reforms to the Spac market with an aim to improve transparency and bring rules more in line with those of traditional initial public offerings.

The proposal, which is open for public comment, would increase the liability on underwriters by requiring banks that work on Spac IPOs to also work on the subsequent merger. Banks would also be liable for any misstatements related to the merger.

“We are reducing our involvement in the Spac business in response to the changed regulatory environment,” Goldman said.

Goldman has been one of the biggest winners of the recent Spac boom, enjoying lucrative fees that come with working on Spac IPOs and the subsequent mergers, but has since pulled back as investor interest has cooled and performance has waned. Bloomberg earlier reported that the bank was curtailing involvement with Spacs.

Citigroup has also taken a more cautious approach to Spacs following the proposed rules, said a person briefed on the matter. The group, which in 2021 was the top underwriter of Spac IPOs, has not worked on a new blank-cheque listing since the proposal was released.

Banks typically receive about 5 per cent of a Spac’s IPO proceeds in fees, with roughly 3.5 per cent of that earned once the blank-cheque vehicle has completed its merger with a private company.

The SEC’s proposal deems the deferred fees as proving “a strong financial interest” in the completion of the merger, and therefore that the banks should be considered underwriters for the deal and take on any related liabilities.

“It’s a pretty significant rewriting of historical practice as what qualifies as underwriter liability,” said one Spac lawyer, adding that the “banks are all very nervous about being deemed to be underwriters”.

The SEC’s proposal followed regulatory investigations last year into Spac deals.

Lucid Motors, an electric car company that went public via a merger with Churchill Capital Corp IV, was probed over disclosures it made when the company listed.

Digital World Acquisition Corp, a Spac taking former US president Donald Trump’s entertainment start-up, Trump Media and Technology Group, public, last December said authorities were investigating information between the two groups.

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