- The same lawyers that sued Bill Ackman's Pershing Square SPAC are reportedly targeting 50 more, according to Reuters.
- The group already sued E.Merge Technology Acquisition and Go Acquisition this week.
- The lawyers allege that the SPACs are operating illegally by not registering as investment companies.
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The same lawyers that sued Bill Ackman's Pershing Square SPAC earlier this month are now targeting as many as 50 different SPACs in the coming months, according to a Reuters report.
The group of lawyers, which includes firms Susman Godfrey LLP and Bernstein Litowitz Berger & Grossmann LLP, allege that the SPACs are operating illegally by not registering as investment companies subject to the Investment Companies Act of 1940. This week already the lawyers sued E.Merge Technology Acquisition and Go Acquisition, according to the report.
SPACs have often relied that they are exempt from registering as investment companies under the 1940 act, allowing them to sell stock and invest in mergers without restrictions. Money raised from investors often sits in money market funds and government treasuries as the SPAC searches for a suitable merger.
"The lawsuits claim that such investments fall outside a SPAC's primary mission of merging with a company and constitute breaches of the investment company act," the report said, adding that the lawyers are arguing that SPAC sponsors have turned the vehicles into extensions of their hedge funds.
The lawsuit against Ackman's Pershing Square Tontine Holdings has led Ackman to pursue alternative deal options like a SPARC, which would give investors long-term warrants to acquire common stock in the investment vehicle after a deal is announced. Ackman said that while the lawsuit has no merit, it will make it more difficult to find a suitable company to merge with.
The lawsuits represent just one more thorn threatening to deflate the SPAC boom that has cooled off in recent months. With more than 430 SPACs in search of a merger, time is running out, as they often have just two to three years to merge with a company or return the money to investors.
And of the SPAC deals announced and completed, investors are not impressed, with weaker than expected financial results leading to a plunge in share prices.