Legal professionals behind Ackman's withdrawal goal dozen different SPACs
(Reuters) – The lawyers whose action prompted billionaire investor William Ackman to make changes to his particular acquisition company are preparing to target dozen more such vehicles, according to people familiar with the matter.
The group, which includes former Securities Commissioner Robert Jackson, filed lawsuits last week against three blank check acquisition firms: GO Acquisition Corp., E. Merge Technology Acquisition Corp. and Mr. Ackmans Pershing Square Tontine Holdings.
The lawsuits accuse the SPACs of doing business illegally by failing to register as an investment company. Mr Ackman said last week the lawsuit against his SPAC was unfounded, but admitted that the legal uncertainty that would result would make finding a merger partner difficult.
GO Acquisition declined to comment, while E. Merge Technology Acquisition did not respond to requests for comment.
The group of lawyers, which includes law firms Susman Godfrey LLP and Bernstein Litowitz Berger & Grossmann LLP, one of the most prolific U.S. shareholder firms, could file up to 50 lawsuits against SPACs in the coming months, two of the sources said.
Former Commissioner Jackson and law firm representatives declined to comment or did not respond to questions for comment.
While none of the group's lawsuits have survived in court, they indicate a rapidly escalating legal campaign against SPACs. These Shell vehicles are raising funds in an IPO to pursue a merger with a private company. There are currently 438 SPACs that, like the defendants, have not yet brought about a merger, according to SPAC Research.
SPACs became one of the hottest investment trends on Wall Street last year as many retail investors who stayed home during the COVID-19 pandemic placed speculative bets on them. They lost some of their appeal after many of them reported poor financial performance and regulatory crackdown on their disclosures ensued.
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The three lawsuits were all filed on behalf of George Assad, a shareholder in the SPACs. He has been named as a plaintiff in at least 33 other shareholder lawsuits since 2010 against a number of companies, from oil and gas explorer Noble Energy to consumer credit reporting company Equifax Inc., a legal database search reveals.
Financial industry regulator records list Mr. Assad as an employee of brokerage dealer Revere Securities LLC, and public records show that he lives in Methuen, Massachusetts, a city north of Boston.
Mr Assad, 76, referred all questions to his lawyer who did not answer calls and emails for comment. Revere Securities also did not respond to calls for comments.
None of the attorneys in the SPAC lawsuits responded to questions about their affiliation with Mr. Assad.
Two lawyers not involved in Mr. Assad's cases said it was common for law firms and their funders to recruit nominal shareholders – often referred to in the legal community as "high-volume registrants" – when targeting companies.
Thompson Hine LLP's attorney Riccardo DeBari said the courts tend to focus on the validity of claims, not the people filing them.
The second attorney, Foley & Lardner LLP Corporate Partner Louis Lehot, said there was nothing wrong with high-volume filing, but that it would be ethically problematic for the attorneys involved if Mr. Assad were a “front man” for the shareholder lawsuits without him it would have been essential to have harmed itself from the companies involved.
"Our court system relies on actual plaintiffs making actual claims that they actually suffered and that those claims are assessed," said Mr. Lehot.
Investment Company Law
SPACs have traditionally relied on being exempt from investment company registration under the Investment Company Act of 1940 so that they can freely invest and sell stocks prior to merging with a company. They usually park the money they raise from an IPO in US Treasuries and money market funds until they find a merger target.
The lawsuits allege that such investments are outside of the SPAC's primary objective of merging with a company and are in violation of the Investment Company Act. They argue that the SPAC sponsors made these vehicles to expand their hedge funds.
Many Wall Street law firms working on SPACs say the lawsuits are unlikely to succeed. In a memo sent to clients this week, White & Case LLP said the lawsuits "contain no novel arguments or revelations" and that their thesis "was long ago rejected by the SEC".
Douglas Ellenoff, a corporate and securities partner with law firm Ellenoff Grossman & Schole LLP, said the lawsuits could deter some companies from continuing SPAC mergers during the litigation.
"It has a very chilling effect on all responsible capital markets, participants doing their best to comply with securities laws," said Ellenoff.
Mr. Ackman said last week that he plans to give warrants to his SPAC shareholders in a "more structured vehicle" that he called a special purpose vehicle for purchase rights. The SPARC warrants would give Tontine shareholders the right to invest in a merger with a private company once the target is announced – as opposed to a SPAC where investors tie up their money while the sponsor looks for a suitable target.
Mr. Jackson served as the SEC commissioner between 2018 and 2020, and then returned to New York to teach at New York University School of Law. His partners in the lawsuits include John Morley, a professor of law at Yale who has spent years researching investor protection.