A SPAC Counterattack

In defense of SPACs

When 49 major national law firms banded together late last week to condemn lawsuits targeting special purpose acquisition companies, the deal-making world took notice. To get “firms who regularly litigate against each other to agree on something” is impressive, Joseph Grundfest, a Stanford Law professor and former S.E.C. commissioner, told DealBook.

SPACs have recently come under attack in high-profile shareholder suits that challenge their fundamental structure, starting with an action against the $4 billion blank-check firm run by the billionaire investor Bill Ackman, which forced him to rethink his approach.

A quick recap: While SPACs seek a merger target, they park their funds in short-term investments like Treasury bills. The lawsuits say that these financial vehicles aren’t operating companies but investment funds, so they should be subject to the stricter oversight of the Investment Act of 1940 (which would dampen the freewheeling SPAC market). Two prominent securities law professors, John Morley of Yale and the former S.E.C. commissioner Robert Jackson, now of Columbia, were behind the suits. After Ackman, the professors sued two other SPACs, but a source close to the matter said there are no new legal actions planned, contrary to some reports.

Law firms rallied in defense of SPACs. Kirkland Ellis, one of the top legal advisers to SPACs, helped to organize other firms to issue the statement, which said the lawsuits are “without factual or legal basis.” Some who signed on, like Simpson Thacher Bartlett, have comparatively little involvement with SPACs. They are protesting on principle, organizers said. “The market has already driven some reform,” said Christian Nagler of Kirkland Ellis. “Otherwise it should be done by proposing rules and laws, not by lawsuits.”

Article source: https://www.nytimes.com/2021/08/30/business/dealbook/spac-lawsuits.html