(Corrects title of SEC official in paragraph 12)

By Katanga Johnson and Joshua Franklin

WASHINGTON/NEW YORK (Reuters) -While the blank-check deals market reached new heights this week with Grab Holdings’ record $40 billion merger, some lawyers and regulatory experts said the exuberance was unlikely to last as the U.S. securities watchdog steps up scrutiny of such deals.

Southeast Asia’s largest ride-hailing and food delivery firm on Tuesday clinched a merger with special purpose acquisition company, or SPAC, Altimeter Growth Corp, paving the way for a U.S. listing and the biggest-ever blank-check company deal.

The blockbuster merger underscores Wall Street’s mania for the deals in which listed shells take private companies public, with a record $100 billion raised through initial public offerings (IPOs) in the United States this year.

Amid growing worries the market is in a bubble that will hurt investors when it bursts, the U.S. Securities and Exchange Commission (SEC) has been trying to rein-in deals by issuing public warnings and more closely scrutinizing deal filings.

“The SEC seems to be banging every drum and waving every light it can find to make it clear to investors and companies that there’s a lot of risk in SPACs,” said Ty Gellasch, head of Washington-based think tank Healthy Markets. “It seems like the SPAC mania is likely to peak very, very soon,” he added.

The latest SEC action came on Monday in the form of new accounting guidance which suggested warrants issued by SPACs should be accounted for as liabilities instead of equity instruments. That will cause a headache for some SPACs that have to review and re-state their financials.

BurgerFi International Inc., which went public through a SPAC in December, postponed its earnings on Tuesday, saying it needed more time to assess the impact of the new SEC guidance.

Although it is unlikely to deter companies from going public, the guidance “validates the concern of some that the SEC has a persistent hostility towards SPACs,” said Douglas Ellenoff, partner at law firm Ellenoff Grossman & Schole LLP.

Wall Street’s biggest gold rush of recent years, SPACs are listed shell companies that raise funds to acquire a private company and take it public, allowing targets to sidestep the more onerous paperwork and regulatory checks faced by traditional initial public offerings.

The boom has been fueled by easy monetary conditions as central banks pump cash into pandemic-hit economies, strong trading debuts, and a preference among start-ups for an easier and more private route to the public market.

Investor advocates have warned for months, however, that many SPACs are wildly overvalued and that targets may be trying to evade regulatory scrutiny. That has led the SEC’s new Democratic leadership to begin examining SPAC disclosures for misleading information and to warn of concerns over deal fees, conflicts and sponsor compensation.

Last week, the SEC’s acting corporation finance director John Coates said he wasn’t pro or anti SPAC, but that “new issues with both standard and innovative SPAC structures keep surfacing.”

The agency has also opened an inquiry into how Wall Street underwriters are managing the risks involved, seeking data on internal controls, and its enforcement unit is probing electric vehicle makers that went public via SPACs.

“The SEC is trying to be proactive here and not just react to what is likely to be an inevitable disaster,” said Howard Fischer, a partner with law firm Moses & Singer. “The Grab announcement shows that regulatory efforts to tamper down ‘irrational exuberance’ almost always lag behind investment trends.”

Still, with 434 SPACs boasting nearly $139 billion in cash looking for targets, according to information provider SPAC Research, lawyers were skeptical that the SEC’s recent efforts would deflate the market in the near-term.

Alan Annex, co-chair of Greenberg Traurig’s global corporate practice, said the accounting changes were an easy fix for new SPACs and companies were still looking for deals.

“Within the next two weeks this accounting change will all be sorted.”

(Reporting by Katanga Johnson and Joshua Franklin; Writing by Michelle Price; Editing by Andrea Ricci)