(Bloomberg Opinion) -- The blank checks are getting larger on Wall Street and have even fewer strings attached.

In mid-December, Black Ridge Acquisition Corp., a public investment vehicle that raised $138 million in an IPO a little more than a year ago to do deals in the energy sector, announced that it was instead buying a company that organizes poker tournaments. As part of the deal, Black Ridge will also get a 1,000-person arena in Las Vegas for playing video games.

Black Ridge is a special purpose acquisition company, or SPAC, sometimes called a blank-check company. It’s one of a growing number that have gone public recently, but unlike most IPOs, Black Ridge had no actual operations when it sold shares to the public, just a Minneapolis oil and gas company sponsor and a plan to do deals that would capitalize on the “extensive networks and insights that our management team has built in the energy industry,” according to its prospectus. And like a growing number of SPACs, Black Ridge failed to stick with its plans. Black Ridge now says its management team has “decades of experience in the gaming” industry.

In October, Hunter Maritime Acquisition Corp., which was formed to focus on international shipping, agreed to purchase a Chinese fintech company, NCF Wealth Holdings. When Stellar Acquisition III Inc. went public, it said its executives had “over 80 years of experience in the energy logistics industry,” where it would be looking to do deals. Naturally, two days after Christmas, Stellar bought Phunware, a blockchain developer. In the press release, George Syllantavos, most recently the CEO of an energy shipping company, said he and his team were excited to apply their expertise to the development of PhunCoin, a digital currency designed to “introduce a new model of rewarding individuals for sharing their data.” Investors, though, don’t seem taken back by the disconnect. Shares of Phunware Inc., as the company is now known, are up nearly 1,350 percent since Dec. 27, though they plunged $63 on Thursday to $157.

All of this is apparently not only allowed but encouraged. For the past two years, the Nasdaq and the New York Stock Exchange, in large part the gatekeepers for these investments because they set listing standards, have been competing to lower the bar for what goes in the world of SPACs. That competition was perfectly timed with a rebound in oil prices after they hit bottom in early 2016. That led to, as Bloomberg Businessweek recently reported, a flood of SPACs that said they were looking to do energy deals to take advantage of the price resurgence. Now that oil prices are down again, those deals look less attractive and are harder to finance, so SPACs are looking for alternatives.

SPAC offering statements typically do include plans, sometimes detailed, for how the companies will spend the money they raise. But those documents almost always include language that is the legal equivalent of “never mind,” essentially letting the SPAC executives do whatever they like. The result is more and more deals like Black Ridge’s poker play. And the deal, in poker parlance, is a river rat, meaning a weak hand waiting to the last second for a good outcome. Black Ridge had a two-year window to complete a deal, which was rapidly closing. SPACs can decide to give their money back to investors, with no penalty, but that would mean giving up lucrative fees for both its executives and the investment bank that underwrote the deal, not to mention salaries that SPAC executives can claim only after a deal is completed. So poker and video gaming it is.

SPACs do come with an out. Along with voting to approve any deal, SPAC investors also have the right, around the time of the acquisition, to ask for their money back, even if they voted for the deal. And last year, the Securities and Exchange Commission essentially rejected an effort by both exchanges to further relax the SPAC rules. But in October, the NYSE submitted a revision of its latest SPAC proposal that is more likely to pass, with the Nasdaq sure to follow. What’s more, the SEC’s other efforts to encourage IPOs by eliminating regulations and investor protections has boosted SPACs as well. And the uninspired recent performance of SPACs doesn’t seem to have stopped any of this. Bloomberg Intelligence analyst Vincent G Piazza  wrote an article recently calling the current outlook for SPACs deeply concerning.

On top of that, some say that SPACs attract only institutional investors, not individuals, and so should be lightly regulated. But a number of mutual funds, like the Merger Fund, which are marketed to individuals, are regular investors in SPACs. The Merger Fund has held shares of Black Ridge. Furthermore, Etalon Capital launched a SPAC index early last year, potentially paving the way for a SPAC exchange-traded fund, which would blindly lead investors into any deal that one of these not-yet-companies propose. This is one of the few instances in which passive investing is a terrible idea.

If on the surface it seems unusual for Black Ridge Acquisition to be in the gambling and esports business, it might seem equally unusual for it to have ever been in the energy business. Black Ridge Oil & Gas Inc., the entity that sponsored the SPAC, used to be named Ante5 Inc. and was spun out of a company formerly called WPT Enterprises, which ran the World Poker Tour before selling it. Lyle Berman, who is on the board of both Black Ridge and its SPAC, is a poker player and a casino owner. His son is the chairman of the board of Black Ridge’s oil and gas company. A few years ago, Berman, his son and some associates appear to have rolled some of the proceeds of their sale of the WPT into a bet on fracking by merging their poker spinoff with a Midwestern oil and gas company and then taking its name. They then recruited a former Exxon Mobil executive, Kenneth DeCubellis, to run the business, who later became co-sponsor of the SPAC, helping the group to raise an additional $140 million.

Berman’s oil and gas company essentially ceased its operations in early 2016, about a year and a half before it raised the nine figures for the SPAC based in part on what it called its extensive experience in the energy industry. After oil prices dropped in late 2015, Black Ridge hit a cash squeeze and was forced to liquidate 95 percent of its assets in March 2016. Black Ridge was alive in name only by the time it came to market with the SPAC. Its shares trade for a little more than 4 cents, and its latest financial filing showed the company hadn’t recorded a single dollar of sales for at least 15 months.

James Moe, the CFO of both Black Ridge Oil & Gas and the SPAC, said in an email that the company reviewed dozens of acquisitions in the past year before settling on the one they are pursuing. “The management team determined that with the rapidly growing esports market,” Moe said, combining Black Ridge with two global esports and entertainment assets “represented the best opportunity for its investors at this time.” 

If getting back to familiar territory for Berman and his associates is a smart more —  it’s reuniting him with the WPT — it’s also an expensive one. Black Ridge is paying Hong Kong-based Ourgame International Holdings $214 million in cash, stock and assumed debt to buy the assets that will form the new Allied Esports Entertainment, which is what the SPAC will be named after the acquisition. That’s more than 10 times the $19.9 million Allied Esports’ businesses generated last year. It’s also far more than the $35 million Ourgame paid in mid-2015 to acquire the WPT from the company that bought it from Berman and his associates.

While investors might be comforted that the Black Ridge executives could ultimately be better at esports than energy, their investment vehicle underscores how SPACs can play fast and loose with their dealmaking. 

SEC Chairman Jay Clayton has cited a perception that public markets are essentially rigged against “Mr. and Mrs. 401(k)” as a reason for the recent dearth of IPOs. Making markets appear more fair, he has said, will bring back them back and bolster economic opportunity. But a Wild West of SPACs is probably not what Clayton should have in mind when he says he’s looking out for the interests of individual investors.

To contact the author of this story: Stephen Gandel at sgandel2@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen Gandel is a Bloomberg Opinion columnist covering banking and equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.

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