U.S. Law Firm Group Pushes Back on Lawsuits Calling for SPAC Regulation

The legal tussle around special purpose acquisition companies (SPACs) intensified on Friday as a group of U.S. law firms hit out against lawsuits last week that called for blank-check firms to be regulated as investment companies.

Source: Reuters | Published on August 30, 2021

New SEC rules for SPACs

SPACs are acquisition vehicles that use IPO capital to take a private company public, and can make investments and sell stock without restrictions before such a merger.

Any company "that temporarily holds short-term treasuries and qualifying money market funds while ... seeking a business combination with one or more operating companies is not an investment company under the 1940 Act," a group of 49 law firms said in a joint statement on Friday.

The case is being argued by former Securities and Exchange Commissioner Robert Jackson and Yale Law School professor John Morley.

Earlier this month, Bill Ackman's blank-check firm was sued by an investor who alleged Pershing Square Tontine Holdings Ltd had improperly invested in securities, and that it should be regulated under the Investment Company Act of 1940.

Reuters reported on Thursday that the same lawyers who targeted Ackman could bring up to 50 new lawsuits against other SPACs.

Ackman last week called the lawsuit meritless, but conceded it was unlikely to be resolved soon and could also dissuade potential merger partners. His Pershing Square Tontine Holdings is the biggest SPAC ever, having raised $4 billion last year.

The billionaire investor said he planned to give Tontine shareholders warrants in a "better structured vehicle", which he called a special purpose acquisition rights company (SPARC).

Activity in the blank-check space has recently waned off last year's boom due to heightened scrutiny from the SEC and souring of investor sentiment.