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Blank check stocks and IPOs are exceptionally risky investments.
Increased IPO activity and the counts of IPO stocks include blank check companies.
Stick to IPO companies that have a running start on building successful businesses.

Blank check companies aren't companies that sell blank bank checks to businesses and individuals with their routing numbers on them.

Instead, they're companies in developmental stages. These companies don't even have established business plans. Sometimes the company's business plan is simply to become part of someone else's business through merger and acquisition activity.

They are known as blank check companies because they will, in essence, write a blank check to acquire another company and its technology or services.

These companies are also known as Specified Purpose Acquisition Companies, or SPACs.

Blank check stocks and IPOs are exceptionally risky investments. The CEOs of these small start-up companies ask investors to buy shares basically on faith and hope. They ask venture capitalists to fund the company's “future operations,” whatever they might entail. There's no guarantee that any blank check company will be successful, or make returns for investors.

Even though these are risky investments, they're not without rules. According to the Security Act of 1933, blank check companies must disclose the terms and conditions of their public stock offerings and place any of the money they receive from stock purchases into an escrow, or third party account.

Additionally, the SEC ruled in the late 1980s that any purchase by a company must win the approval of 80% of its shareholders. If that doesn't happen, and the company remains a shell of a business, investors are owed refunds. Additionally, the company has 18 months to make an acquisition deal, or shareholders receive a refund.

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I don't know about you, but I could make a lot more money trading options on stronger stocks during that 18 months, than just letting the money collect dust until the “shell company” fails and I'm left back at Point A.

It's important for you to know that when you hear of increased IPO activity and the counts of IPO stocks annually and quarterly, blank check companies are included in those IPO counts.

Investing In IPOs: Red Herring Investing

Blank check stock IPOs have increased exponentially in the 21^st century. In 2003, only one blank check company issued an IPO, but in 2004, 13 blank check companies were launched publicly and underwritten by well-known banking institutions.

In 2005, 29 blank check companies, with no business plan to hear of but to acquire another company, IPOd. Last year, there were 38 blank check companies begging for shareholders' money.

Speculative investors, with plenty of money to play with, are making these stocks much more well known. But just because they invest in these companies, doesn't mean that everyone should consider them a solid investment strategy.

It seems like these companies are just suckering investors, putting their stocks out there as red herrings so you miss some real gems in the market. From the increasing numbers of these IPO companies year over year, these shell companies are garnering support from extremely speculative investors through their “intentions” to purchase a company in a specific sector or industry, rather than posing as focused micro-cap or small-cap companies in a specific industry with a game plan.

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Some companies do allow investors a little incentive by suggesting the industries where they would like to focus their industries. Sometimes, this bit of information, combined with industry projections, can bring early, enthusiastic investment. But some blank check companies refuse to block themselves in.

Investing In IPOs: Blank Check Stocks Offer Little In The Way of Opportunity

Recent IPO filings from blank check companies include Oceanaut (OKN.U), which plans to acquire a shipping company and Victory Acquisition (VCT-U), which plans to operate in the business and marketing industry.

An upcoming IPO is in the cards for Santa Monica Media Corp. (MEJ.U) on March 12, 2007 for $8 per share, which plans to operate somehow in the media industry.

I ask the question again: Who would want to invest in these companies when there's so many better out there?

I mean, just look at the poor performance of some of these blank check companies over the past year, compared with easy doubles you could have made with stocks like MasterCard Inc (MA:NYSE) and Omniture (OMTR:NASDAQ)…

Marathon Acquisition Corp. (MAQ-U), a company that “targets various industries in America and Europe” is up a measly 7.93% from its IPO of $8 per share from August 2006.

Information Services Group (III-U) is up only 0.6% from its IPO of $8 at the end of January. Dekania Corp. (DEK-U) is in the same boat, down 0.2% from its IPO of $10 in early February.

Union Street Acquisition (USQ-U) is down 1.1% from its IPO of $8 per share in February, and NTR Acquisition Company (NTQ-U) is down 1.6% from a $10 per share IPO in late January.

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And look at this: Churchill Ventures (CHV-U) which IPO'd on February 28 as a company that will focus on communications and media companies… has not moved a penny.

The only “successful” move from a blank check company is Freedom Acquisition Holdings' (FRH-U) offering in the financial industry, which is up 6.5% from its IPO of $10 in December 2006.

What's the sense of waiting around for these companies to do something, anything, to add value to their empty business plans? And anyway, at such low IPO prices, these companies will still be around after riskier shareholders approve acquisition activities.

Then you can invest in these companies that finally have a backbone and a raison d'etre.

Until then, I would stick to IPO companies that have a running start on building successful businesses.

Some upcoming sensible IPO offerings include Sirtis Pharmaceuticals (SIRT:NASDAQ), a company that develops drugs for age-related diseases, including Type 2 Diabetes… and OncoGenex (OGXI:NASDAQ) which creates treatments to reduce tumor cells' resistance to treatment.

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Related Resources
Investing in IPOs: Stay on top of upcoming IPO filings, pricings, and breaking news. - IPOHome.com
Blank Check Stocks: Tricky investing includes betting on blank check IPOs. - BusinessWeek Online
Blank Check IPOs: The string of empty shell companies going public may slow down… which is great for investors. - The Wall Street Journal