Manuel Balce Ceneta/AP
- 49 law firms are hitting back at lawsuits against SPACs that are seeking to have them regulated as investment companies.
- The firms said the SEC has reviewed more than 1,000 SPACs and haven't deemed them subject to the Investment Company Act of 1940.
- A high-profile lawsuit was filed last month against billionaire Bill Ackman's SPAC, Pershing Square Tontine Holdings.
- See more stories on Insider's business page.
A number of US law firms are pushing back on lawsuits against SPACs that claim the blank-check companies are operating as investment firms and should be regulated as such.
The 49 law firms "view the assertion that SPACs are investment companies as without factual or legal basis," they said in a letter issued Friday.
The firms said consistent with longstanding interpretations of the Investment Company Act of 1940, any company that temporarily holds short-term Treasuries and qualifying money market funds while engaging in its primary business of seeking a business combination is not an investment company under the 1940 Act.
They said staff at the Securities and Exchange Commission have reviewed more than 1,000 SPAC initial public offerings over two decades and those haven't been deemed to be subject to the Act.
The letter was released after billionaire hedge fund manager Bill Ackman's SPAC, Pershing Square Tontine Holdings, was sued earlier this month and the high-profile case could have an impact on the wider industry that's seen a boom in business over the past year.
The lawsuit against Pershing Square Tontine Holdings alleges it's operating more like an investment fund than an operating company - similar to his hedge funds - and that it should be regulated by the 1940 Act. Investing in securities "is basically the only thing that PSTH has ever done," the complaint viewed by Insider said, adding that buying stocks is not what a SPAC should be doing.
The lawsuit by shareholder George Assad is being backed by a group of lawyers that include former U.S. Securities and Exchange Commissioner Robert Jackson and Yale law professor John Morley. Assad also filed lawsuits against blank-check firms Go Acquisition and E.Merge Technology Acquisition with the group's backing.
The lawyers that sued Ackman's SPAC are targeting as many as 50 different SPACs in the coming months, according to a Reuters report and a CNBC report last week.
"We believe this litigation is totally without merit," Pershing Square Tontine Holdings said in a statement this month. "The complaint bases its allegations, among other things, on the fact that PSTH owns or has owned US Treasurys and money market funds that own US Treasurys, as do all other SPACs while they are in the process of seeking an initial business combination."
Ackman in July ended his plan to buy 10% of Universal Music for $4 billion after federal regulators raised issues about the proposed transaction, the billionaire announced in his shareholders' letter.