(Bloomberg) — Investors in Bill Ackman’s Pershing Square Tontine Holdings Ltd. — some recruited through a Reddit forum — rallied to defend the world’s largest special purpose acquisition company against claims by fellow shareholder George Assad that it was operating illegally.
A group of 62 investors holding almost 1.3 million shares filed court papers last week in support of the SPAC’s bid to dismiss a lawsuit by Assad, who sued in August after the company abandoned plans for a deal with Universal Music Group. Assad alleged that Pershing Square Tontine isn’t a SPAC and that it should be regulated under the Investment Company Act of 1940, which would require registration with the U.S. Securities and Exchange Commission.
The investors supporting Ackman said in court filings that they purchased shares in the company because they expected it to combine with an existing business. They also claimed Assad’s suit seeks to “wrest the mandate of SPAC regulation away from the SEC, or is a backdoor way of lobbying for SEC action.”
Subjecting SPACs to the 1940 law would “upset two decades of market practice and individual shareholder expectations and likely kill the SPAC form, thereby further decreasing choices for individual investors,” the investor group said. “Any regulation of the SPAC market should come from the SEC (or Congress) and not from private litigants.”
On Tuesday, Assad urged the judge in the case to disregard those claims. He said their court filing was written by a lawyer who was picked by the SPAC “for a group of investors recruited on Reddit,” citing a post on a forum seeking investors to sign onto the document and responses criticizing the suit.
‘An Idiot’
“George Assad is going to feel like an idiot because he never understood the UMG deal in the first place,” one user, googleofinformation, posted.
Pershing Square Tontine says it suggested a lawyer with experience in “complex securities matters” when an investor reached out and said a group of shareholders wanted to weigh in on the Assad suit. The company said it didn’t pay the lawyer and that its firm has never represented the SPAC or any of its affiliates.
Assad’s “last-ditch effort to impugn the motivations of 62 of his fellow shareholders and the sincerity of their stated views should be rejected,” Pershing Square Tontine said in a court filing.
The lawsuit by Assad, who has as one of his lawyers former SEC Commissioner Robert Jackson, could have broad implications for SPACs if a court determines they are subject to regulation under the Investment Company Act, which would require SEC registration and place restriction on fees charged for investment advice.
The case was filed less than a month after Pershing Square Tontine ditched the deal with Universal Music. Ackman agreed to buy a 10% stake in Universal Music from Vivendi SA in June prior to its planned listing in Amsterdam.
But the deal’s structure would have seen Pershing Square Tontine acquire the stake in UMG as a stock purchase rather than a typical SPAC merger, and regulators shot down the plan. Ackman said his hedge fund would buy the stake instead.
Looking for Mergers
SPACs, also known as blank check companies, are empty corporate shells that raise money from investors and then aim to merge with a private business, essentially taking that company public through the back door. In a blank-check merger, companies can pitch investors based on their forward-looking financials, which isn’t allowed in a standard initial public offering of shares.
Pershing Square Tontine has said the SEC has approved more than 1,000 SPACs since 2003 without requiring any of them to register under the 1940 law and that the company’s only purpose is to effect a business combination.
SEC Chair Gary Gensler earlier this month laid out a laundry list of concerns over special purpose acquisition companies, delivering his strongest signal yet that he’ll push for much tougher rules for the blank-check firms.
The case is Assad v. Pershing Square Tontine Holdings 21-cv-06907, U.S. District Court, Southern District of New York (Manhattan).
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