Warren Calls on SEC to Delay SpaceX IPO

Warren Calls on SEC to Delay SpaceX IPO

Questionable valuation, flawed governance structure, index fund changes raise concerns about impact on retirees and small investors, windfall for SpaceX insiders

"(T)his IPO appears to present significant risks to ordinary investors and their retirement savings - while carrying enormous advantages for SpaceX insiders"

Text of Letter (PDF)

Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Chair of the Securities and Exchange Commission, ("SEC") Paul Atkins, raising serious concerns about the initial public offering (IPO) of Space Exploration Technologies Corp. ("SpaceX") and urging the SEC to delay the IPO until steps are taken to protect investors and market integrity.

"The massive size of the SpaceX IPO alone, under normal circumstances, would justify careful SEC review and attention to investor needs," wrote Ranking Member Warren. "But these are not normal circumstances: a number of additional factors exacerbate concerns and require action by the SEC to meet its investor protection and market integrity mandates by delaying the IPO."

The Ranking Member continued: "Before the company is allowed to go public, the SEC must investigate whether index funds and other financial entities involved in SpaceX's IPO are adequately protecting investors, and the company must fill disclosure gaps related to valuation, ensure risks and details related to its concentrated governance structure are clear to investors, and abandon mandatory arbitration to provide shareholders whose rights are otherwise gutted in this structure a minimum avenue for recourse."

Ranking Member Warren detailed the risks from the SpaceX IPO:

• About the company's valuation: "(M)arket analysts have raised concerns about the math underlying SpaceX's target valuation, calling it 'nonsensical,' 'smoke-and-mirrors accounting,' and 'truly out of this world.'"
• About governance structure and investor protections: "Publicly traded companies are meant to be accountable to their shareholders. The SpaceX IPO will flip this model on its head, with shareholders providing billions of dollars in new capital with no accountability measures for Mr. Musk or company leadership, as the company '(combines) supervoting shares, mandatory arbitration, stricter rules on shareholder proposals and Texas corporate law to give control to SpaceX CEO Elon Musk and other insiders.'"
• About passive investors: "the SpaceX IPO creates a new concern: that major stock market indexes are being rigged in a way that would force millions of investors in passive index funds - a generally lower cost investment option that can be attractive to retail investors - to invest in SpaceX and face exposure to SpaceX's significant risks with no choice in the matter."

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