As Bill Ackman seeks dismissal of a lawsuit against his beleaguered SPAC, he argues that the Securities and Exchange Commission helped his case.
The SEC’s proposed special purpose acquisition company rule does not say that Pershing Square Tontine Holdings or any other SPAC is an investment company that would fall under the rules of the Investment Company Act of 1940, a said Ackman’s attorney in a letter to a judge overseeing the trial, who claims otherwise.
“If anything, the Proposed Rule underscores once again – as Defendants have consistently argued – that the SEC, not opportunistic private litigation, is the statutory guardian with regulatory authority and responsibility to assess whether a SPAC is an investment company,” Roberta Kaplan, a lawyer for the Pershing Square defendants, wrote in the letter filed Monday.
Ackman’s letter to the judge also pointed out that the proposed rule is not yet law and may never be, and therefore should not be considered authoritative in this case. The SEC is accepting comments on the proposed rule until May 31, and so far the reaction has been minimal. Only six people responded, and none of them go into the details of the proposed changes.
The SEC never expressed interest in bringing SPACs under the Investment Company Act, with its stricter rules, until two securities law professors, including a former SEC commissioner, last sued Pershing Square on these grounds. summer. They later sued two other SPACs but stopped there after an outcry from the legal community representing the SPACs.
Then, suddenly, the issue surfaced at a March 30 SEC hearing where several new rules governing SPACs were proposed. “The line between a SPAC and an investment firm is blurred,” Chairman Gary Gensler said in his opening remarks at the hearing.
The proposed rule went further, stating “We believe that certain SPAC structures and practices may raise serious questions about their status as investment companies.”
He explained that “as the market for SPACs has grown dramatically in recent years, some SPACs have sought to operate in innovative ways, suggesting that SPACs and their sponsors need to focus more on assessing when a SPAC could be an investment company and therefore subject to the requirements of the Investment Companies Act 1940.”
Although she didn’t mention Ackman’s SPAC by name, Tontine certainly planned to act in an “innovative” way when she agreed to take a stake in Universal’s IPO. Vivendi’s Music Group last summer instead of merging with a private company, as is the usual SPAC approach. The SEC told Ackman it didn’t think the deal would qualify as SPAC, and he quickly canceled the plans.
In its proposed rule, however, the SEC acknowledged that “SPACs are generally formed to identify, acquire, and operate a target company through a business combination and not for the stated purpose of being a private equity company.” ‘investment”.
The SEC is proposing an 18-month safe harbor for SPACs to avoid being considered an investment company. Ackman’s SPAC is already beyond that, and so are many others, given the large number of SPACs listed over the past 18 months that have yet to find a merger partner. . Ackman’s letter noted that the proposed rule says nothing about whether such a rule would be applied retroactively. This could be significant as to its ultimate impact. A 24-month period used to be the norm, but last year more SPAC IPOs have reduced the window for closing a deal, with the average period now at 15 months.
Most of the other SPAC changes proposed by the SEC — more disclosure and more liability for making misleading projections — were expected. But a rule suggesting a safe harbor for SPACs to avoid investment company status seemed to come out of nowhere.
One person who has expressed support for the arguments raised by academics suing Pershing Square is the new director of the SEC’s investment management division, William Birdthistle, as Institutional investor Previously reported.
When SEC commissioners met to present the new rules, Birdthistle was among those speaking.
“This is the first time the commission has specifically addressed the issue of whether SPACs are investment companies,” he noted.