December 22, 2021

SPACs: New Director of SEC’s Investment Mgt. Division Isn’t a Fan

Yesterday, the SEC announced that Prof. William Birdthistle of Chicago-Kent Law School had been appointed as Director of the SEC’s Division of Investment Management.  If you’re in the SPAC business, you probably don’t think this is good news, because it’s pretty clear that the new Director of IM thinks that many SPACs have significant Investment Company Act problems.

Earlier this year, Prof. Birdthistle was outspoken on Twitter & elsewhere about his views on the lawsuit challenging Pershing Tontine’s compliance with the Investment Company Act. While his tweets have since been deleted, other statements include this interview, in which Prof. Birdthistle cited a CLS blog that he penned about the case and said that his “personal view is that the plaintiffs’ argument is quite persuasive.”  In other public comments, Prof. Birdthistle noted his belief that the case could be the “death knell” for SPACs:

“The SPAC industry was already under increasing scrutiny from the SEC; if there is now a compelling new theory for why SPACS are violating federal law, that could be their death knell,” says Birdthistle. “The SEC has killed off other capital raising schemes before, with a relatively minor regulatory touch, like Initial Coin Offerings.”

Birdthistle says that coming from legal heavy hitters like Yale University law professor John Morley and former Republican SEC Commissioner Robert Jackson, this lawsuit is very serious. He says that this will have a chilling effect on SPACs and that “every business with an interest in going public or raising capital on Wall Street is going to need an answer to this litigation before they can move forward with their plans.”

So, it looks like the SEC couldn’t possibly have put a bigger lump of coal in the SPAC biz’s stocking than the one that it deposited there with this announcement.  That’s because someone who believes that the kind of Investment Company Act issues raised in the Pershing Tontine suit might be the death knell for SPACs is now in a position to play an influential role in determining whether they will be.

John Jenkins