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Bill Ackman, CEO of Pershing Square Capital, speaks at the Wall Street Journal Digital Conference in Laguna Beach, California, U.S., October 17, 2017. REUTERS/Mike Blake
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(Reuters) – Quote in 15th paragraph may be objectionable to some readers.
If anyone should know what investors believed they were buying when they purchased shares in billionaire Bill Ackman’s special purpose acquisition company, you’d think it would be the investors themselves.
But in a new filing in the high-profile lawsuit alleging that Ackman’s SPAC is actually an illegal investment company, two prominent law professors contend that things are not always what they seem when it comes to representations by Pershing Square investors.
Last week, 62 shareholders with a $25 million stake in the Pershing Square Tontine Holdings Ltd SPAC filed an amicus brief supporting Pershing Square’s motion to dismiss the lawsuit. The shareholders’ lawyer, Matthew Peller of Rolnick Kramer Sadighi, said in the brief that these investors bought their shares in the Pershing SPAC because they believe in its mission: to identify and acquire a private company with high-growth opportunities.
The investors told U.S. District Judge Analisa Torres of Manhattan that the entire premise of the lawsuit against Pershing Square Tontine is wrong. As you may recall, the Pershing suit is one of three widely publicized SPAC challenges filed last summer on behalf of shareholder George Assad by New York University law professor (and former Securities and Exchange Commissioner) Robert Jackson and Yale University law professor John Morley, among other plaintiffs lawyers.
The suits allege, broadly speaking, that the SPACs, which went public more than a year ago and haven’t found targets to acquire, should be regulated under the Investment Company Act of 1940 because their only real activity is holding investors’ money in Treasury or money-market accounts. (SPACs typically stash investors’ money in rock-solid, short-term securities in case shareholders opt to redeem their shares when the SPAC announces its target acquisition.)
The Pershing investors rejected that theory in their amicus brief. They said they didn’t buy shares of the SPAC to obtain meager returns from government securities while Pershing shopped for a target. Shareholders said they invested because they trusted the SPAC’s sponsors to make a deal that would boost the value of their shares.
That’s significant, the amicus brief said, because judges must take shareholders’ expectations into account when they decide if a company should be registered under the Investment Company Act.
The amicus brief cited one of the leading cases on “inadvertent” investment companies, a 2007 ruling from the 7th U.S. Circuit Court of Appeals in Securities and Exchange Commission v. National Presto Industries Inc. The appeals court, as I’ve reported, ruled that because reasonable investors continued to treat National Presto as an operating company, “it follows that Presto is not an investment company.”
The Pershing Square Tontine SPAC investors said the same is true of them: They don’t regard the SPAC as an investment company offering a paltry return on money held in government securities, but as an operating company in the business of acquiring a valuable target.
But did the shareholders independently reach that conclusion?
In a response filed on Tuesday, law profs Jackson and Morley and their co-counsel from Susman Godfrey and Bernstein Litowitz Berger & Grossmann cautioned the judge to be skeptical about the amicus brief because “Its origins are suspect and its arguments are wrong.”
The law profs contend that the shareholders who signed the amicus brief got more than a little help from Pershing Square. The brief, they said, appears to have been organized on the internet message board Reddit, where Pershing Square SPAC investors discussed the SPAC’s motion to dismiss the lawsuit and mused about how they could help. On Dec. 1, one of the Reddit participants leading a drive to recruit shareholders to sign an amicus brief posted a message that he said he had received from Pershing Square’s investor relations department. (The law profs’ brief includes an attachment of the relevant Reddit posts.)
The message from Pershing Square’s IR department allegedly said: “Thank you for reaching out and for your offer to help. We have identified a good lawyer, Matt Peller at Rolnick Kramer, who is willing to assist you for no or a small fee. Time is of the essence and a filing would have to be made by December 13, 2021. Please contact Matt Peller as soon as possible. . . . Kind regards, Pershing Square IR.”
That message was critical, according to the law profs. It showed that Pershing Square lined up a lawyer to posit arguments it wanted the judge to hear, using its purported shareholder supporters only as tools to get those arguments before the court in the guise of an amicus brief.
The absurdity of basing legal conclusions on the espousals of the SPAC shareholders who signed the brief, the law profs suggested, is laid bare in another Reddit post. A Pershing Square investor identified as iamVPD, agreed to sign the brief, writing, “Okay I’m in. Don’t even really understand what I’m doing here, but fuck [plaintiff] George Assad.”
Pershing's lawyers at Kaplan Hecker & Fink fired back at the profs in a Tuesday afternoon letter to Torres. The law firm did recommend Peller as counsel for prospective shareholder amici, the letter said. But he and his firm have no ties to Pershing Square and have received no money or promises of work from Pershing. Peller, the letter said, worked independently with shareholder clients on the amicus brief.
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," the letter said.
In a phone interview, Pershing Square’s Ackman added that the SPAC’s shareholders are almost unanimous in their opposition to the law profs’ suit. “If the amicus brief could have been signed by every shareholder, it would have been,” he said. “This litigation is harmful to every shareholder of Pershing Square Tontine Holdings.”
Read more:
In setback for Ackman, proposed investment vehicle 'SPARCs' more SEC scrutiny of NYSE rule
Law profs defend theory that SPAC is illegal under Investment Company Act
49 firms in 72 hours: How the SPAC bar united against law profs’ splashy lawsuits.
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.
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