Turns out blank check firms may have blank checks of their own to write — for counsel fees.
As first reported by The New York Times on Tuesday (Aug. 17), a lawsuit has been filed against famed investor Bill Ackman’s Pershing Square Tontine Holdings (PSTH).
And the suit seems to hinge on just what PSTH actually is — whether it is indeed a special purpose acquisition company (SPAC), or an investment firm. If the latter, then it should be regulated under Securities and Exchange Commission (SEC) rules that have been in place for decades.
A fair amount of the issue in play seems to be what we might term “inside baseball” on Wall Street — but the broader implications are for the SPAC industry at large.
After all, if lawsuits and challenges wait in the wings, it’s possible, even likely that they may affect the combinations between blank check firms and the upstart FinTechs, digital first firms and online platforms they take public. Along the way, if the SPAC dealmaking is severely dampened, then so is one of the key features of those public listings, the generally rosy financial projections that have been part of investor materials and filings ahead of the market debuts.
To drill down a bit into what the suit alleges, the complaint, which was filed by former SEC commissioner Robert Jackson and John Morley, a Yale law professor, states that the company is not in fact a SPAC, since it invests in securities — and should be regulated by the Investment Company Act of 1940. The suit also alleges that PSTH sponsors got exorbitant compensation that would have otherwise been illegal were the company to have been regulated through the Investment Advisers Act.
As CNBC reported, a Pershing Square spokesperson said the complaint bases its allegations in part “on the fact that PSTH owns or has owned U.S. Treasurys and money market funds that own U.S. Treasurys, as do all other SPACs while they are in the process of seeking an initial business combination.”
That raises the specter that existential questions loom for SPACs in general; IPO proceeds, held by the firm while it seeks acquisitions, may be held in Treasuries or other holdings. If that structure means there’s debate over how those SPACs are governed — well, Wall Street hates uncertainty above all else. That would cause many a would-be institutional holder (and likely retail investors) to pull back.
Ackman has already had a bit of contention over PSTH. As noted earlier in this space, he abandoned his plans to take a stake in Universal Music Group via special purpose acquisition company.
Ackman said in a letter to shareholders in July that, “Our decision to seek an alternative initial business combination (IBC) was driven by issues raised by the SEC with several elements of the proposed transaction — in particular, whether the structure of our IBC qualified under the NYSE rules.” In other words, it seems that Ackman and company were not able to convince the SEC on the merits of the deal.