Special Purpose Acquisition Company Update
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After the two professors filed a series of lawsuits, dozens of the largest law firms in the United States joined forces to defend special purpose acquisition companies. These lawsuits questioned the legality of some lucrative blank check companies.
In an unusual statement issued on Friday, 49 law firms refuted allegations that some Spacs had effectively operated as an investment company without registration, and refuted law professors Robert Jackson and John Morley. A key argument made.
The blank check company has become a sought-after customer on Wall Street, and banks and legal advisers can earn fees from Spac’s initial public offering and subsequent mergers.
space Raise funds through a public listing, deposit the cash in the U.S. Treasury Department or money market fund, and then use it to acquire shares in a private company. They were created to not be subject to the U.S. Investment Company Act of 1940 or the 40-year Act, which regulates companies that primarily invest in and trade securities.
Companies governed by the ’40 Act must comply with strict reporting requirements and strict restrictions on executive compensation. In contrast, supporters of Spacs can earn hundreds of millions of dollars from transactions.
Former SEC member Jackson and Yale Law School professor Molly are behind three lawsuits filed against Spacs in recent weeks, including Bill Ackman’s Pershing Square Tottine Holdings (PSTH).
In PSTH litigationThey claimed that Ackman’s Spac violated the securities investment rules and insisted that it should be regulated by Act 40. They filed similar claims against two other Spacs in the name of a shareholder, George Assad.
“Investment companies are entities whose main business is securities investment. Investing in securities is basically the only thing PSTH has done,” said the lawsuit against Spac led by Ackerman.
The law firm that signed the declaration announced that Spacs should not be subject to the 40-year Act. Their statement said: “The signatory law firm’s claim that Spacs is an investment company has no factual or legal basis.”
Several lawyers expressed concern that a ruling in favor of Jackson and Molly would hit the Spac market, which has always been a valuable source of expenses for law firms.
According to data from Refinitiv, the signatories to the Friday statement include White & Case, Kirkland & Ellis, and Weil Gotshal & Manges. They are the top three legal advisors in the Spac merger, and their market share totals 37%.
The professor’s lawsuit may have had an impact. Ackerman told shareholders last week that the “mere existence” of pending litigation would impair his chances of finding a target company for PSTH.
“The lawsuit may have a chilling effect on other Spac’s ability to complete merger transactions or conduct IPOs until the lawsuit is resolved,” he wrote.