The nation’s top law firms are clapping back against an explosive lawsuit filed last week that argues so-called special-purpose acquisition companies, or SPACs, should be regulated as investment vehicles.
In a letter released Friday, 49 of the most prestigious law firms in the US came to the defense of blank check companies, which sparked a craze last year for investors looking to take companies public quickly while sidestepping the hassles and regulations associated with the traditional IPO process.
The letter comes in response to a suit filed last week against billionaire investor Bill Ackman’s giant blank-check company. The suit — which is being brought against Ackman’s Pershing Square Tontine Holdings by former Securities and Exchange Commission official Robert Jackson and Yale Law professor John Morley — alleges that the so-called SPAC, or special-purpose acquisition company, has been improperly acting as an investment company instead of an operating company.
On Friday, the A-list mergers and acquisitions attorneys countered that SPACs are intrinsically operating companies since the blank-check vehicles must merge with a target company or return money to investors.
“Business combinations by SPACs with private companies are creating more public companies which mean more choice for retail investors in the mutual funds in their 401(k)s. Who is against more investor choice?” said Norm Champ, former Director of Investment Management at the SEC.
Signatories on Friday’s counterpunch included Cravath, Swaine and Moore; Kirkland & Ellis; Paul, Weiss, Rifkind, Wharton & Garrison; Simpson Thatcher & Bartlett; Skadden, Arps, Slate, Meagher & Flom; Sullivan & Cromwell; Wachtell, Lipton, Rosen & Katz
Just days after the suit against Ackman’s SPAC, the hedge-fund tycoon threw in the towel and told investors he planned to return their money, blaming the lawsuit for ruining his chances of closing a deal to buy a 10-percent stake in Universal Music Group.
But numerous law firms are concerned the suit against Ackman could have a chilling effect on SPACs if investors are worried they could face litigation.
Over the last 18 months, SPACs have been a cash cow for white-shoe law firms. And many of the lawyers who signed onto the the suit don’t want the lucrative fees to come to an end.
“If 49 firms are scurrying around so quickly, I’m not sure its proof their position is ironclad. It might be they are motivated not to lose business,” William Birdthistle, Professor of Law, Chicago-Kent College of Law, told The Post.
Birdthistle adds that many of the firms that signed on to the agreement don’t have any attorneys specializing in the law they are criticizing — the Investment Company Act of 1940. Some of the top firms that specialize in the matter like Dechert LLP and Debevoise & Plimpton LLP are notably absent from the list of firms that signed on, Birthistle added.
But a person involved with drafting the memo is quick to note that at least half the firms that signed on don’t do any work with SPACs.
“This is about letting investors have choices,” this person told The Post. “SPACs have reversed the decline in the number of companies going public — and that’s good for everyone who relies on public companies for their 401K, for retirement.”
SPACs are shell companies that raise money in the public markets and then use that money to merge with a private company and take it public. This year alone, there have been 389 SPAC IPOs.
As the sector has grown hotter, SEC Chairman Gary Gensler has vowed to crack down on the investment vehicles and introduce more regulation.