Former SEC Commissioner and Yale Law Professor Try to Outflank SPACs

Last week, Pershing Square Tontine Holdings (NYSE: PSTH) was hit with a lawsuit from former SEC commissioner Robert Jackson and Yale law professor John Morley, claiming that PSTH violated the Investment Company Act of 1940.  To which, Bill Ackman punched back by posting a letter to the PSTH website disputing the claims as well as proposing a solution for investors via his SPARC structure.

However, it appears that Jackson and Morley have decided to counter-punch by filing two more suits against GO Acquisition Corp. (NYSE: GOAC) and E.Merge Technology Acquisition Corp. (Nasdaq: ETAC), both claiming once again that the SPACs violated the Investment Company Act of 1940.  This is despite law professors stating in the media that they thought this was an unlikely winnable strategy.

Interestingly, of the current 438 SPACs currently out searching for targets that they could have chosen to sue, Jackson and Morley have selected two more SPACs for litigation that have less than a year left on their clock. Specifically, 11.4 and 11.3 months, for GOAC and ETAC, respectively.

Furthermore, GOAC was underwritten by Credit Suisse, Citigroup and Morgan Stanley as joint-bookrunners, while ETAC was underwritten by Cantor Fitzgerald and Mizuho. All five of these banks (to a lesser extent Mizuho, being newer to the SPAC space) are powerhouses in underwriting SPAC deals.

If you’re going to pile on SPAC suits, these seem awfully convenient targets with convenient timelines, particularly if the strategy is to tie up higher-profile deals (with leading underwriters) in the court system. However, the additional suits do indicate that Jackson and Morley are not going to throw all their cards in with just Ackman.  After all, Ackman is an activist investor and enjoys a good battle.  Plus, he’s proven himself willing to fight endlessly to prove a point (see: Herbalife). Instead, the additional lawsuits appear to be a means to hedge their bets. You just need to win one case.

The question is, how will SPACs fight back?