Bill Ackman, Founder and CEO of Pershing Square Capital Management.
Adam Jeffery | CNBC
Bill Ackman’s troubled SPAC was hit Tuesday by a lawsuit alleging the blanket check company had paid its sponsors “staggering compensation” and demanded that the company’s special status be revoked.
The plaintiffs in the lawsuit – former Commissioner of the Securities and Exchange Commission, Robert Jackson and law professor at Yale John Morley – alleged that Pershing Square Tontine Holdings is not an operating company at all, but that Ackmans SPAC is instead an investment firm, just like its hedge funds. You said the SPAC should comply with the Investment Company Act of 1940.
The lawsuit stated: “By telling the world that PSTH is not an ‘investment company’ for the purposes of the ICA, Defendants structured PSTH to charge their public investors hundreds of millions of dollars in compensation. “
“Under the ICA and [Investment Advisers Act of 1940], the form and amount of this compensation are illegal, “it said.
Both the Investment Company Act and the Investment Advisers Act are the primary laws that govern investment companies and investment advisers, and they give the SEC the power to regulate these entities.
SPACs or Special Purpose Acquisition Companies are listed shell companies with the aim of acquiring a private company and going public.
The lawsuit, which was filed in the U.S. District Court in Manhattan, concerned the alleged $ 880 million SPAC sponsors and directors received from repurchasing warrants. Warrants are a sweetener that gives investors the right to buy a stock at a certain price before a certain point in time.
“This staggering compensation was promised at a time when returns from the company’s public investors were well below the rest of the stock market.
According to an earlier investor presentation, Ackman waived his right to receive sponsor warrants in the now-abandoned deal to purchase 10% of Vivendi’s flagship Universal Music Group.
The deal would have left $ 1.5 billion in residual funds in Ackmans SPAC, which would have been converted into an initial SPARC or special purpose vehicle for another acquisition. The sponsor would only have received warrants in SPARC.
Ackman previously told CNBC that regulators had raised concerns that the entity newly created as part of the deal would become an investment company.
A spokesman in Pershing Square said the complaint was based, among other things, on the fact that PSTH owns, or has owned, US Treasuries and money market funds that own Treasuries, as do all other SPACs, as they go in search of an initial Business combination.
“PSTH has never held any securities that would require registration under the law, nor does it intend to do so in the future. We believe this litigation is completely unfounded,” the spokesman said.
The New York Times first reported the lawsuit on Tuesday morning.
SPACs are also hit by a wave of class action lawsuits as more hyped deals turn out to be flops and stocks fall.
After a record quarter in the first quarter, the SPAC market stalled with emissions falling nearly 90% in the second quarter due to mounting regulatory pressures.
– With the support of Dan Mangan from CNBC.
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