August 30, 2021
SPAC Litigation: 49 Firms Say SPACs Aren’t Investment Companies
Shortly after I pressed the button on Friday’s blog, I received a bunch of emails from law firms informing me that they were one of the 49 firms to have signed-on to this memo challenging the assertion in recent SPAC lawsuits that SPACs are investment companies. Here’s an excerpt:
Consistent with longstanding interpretations of the 1940 Act, and its plain statutory text, any company that temporarily holds short-term treasuries and qualifying money market funds while engaging in its primary business of seeking a business combination with one or more operating companies is not an investment company under the 1940 Act. As a result, more than 1,000 SPAC IPOs have been reviewed by the staff of the SEC over two decades and have not been deemed to be subject to the 1940 Act.
The undersigned law firms view the assertion that SPACs are investment companies as without factual or legal basis and believe that a SPAC is not an investment company under the 1940 Act if it (i) follows its stated business plan of seeking to identify and engage in a business combination with one or more operating companies within a specified period of time and (ii) holds short-term treasuries and qualifying money market funds in its trust account pending completion of its initial business combination.
Personally, I think that getting 49 law firms to agree about anything is pretty impressive. But not everybody thinks so. According to this Law360 article, at least one academic expert on the Investment Company Act isn’t impressed at all:
William Birdthistle, a securities law professor at Chicago-Kent College of Law, on Twitter called the law firms’ joint statement “embarrassing,” saying the statement “cites nothing in support of its position: no cases or SEC guidance.”
Yeah, I’m not thinking the purpose here was to write a brief, so I’m not sure where the characterization of the memo as “embarrassing” comes from. In any event, the memo itself may not cite anything, but separate memos issued by two of the signatory firms – White & Case and Winston & Strawn – provide some authority in support of their position.
– John Jenkins