Milbank LLP has joined 48 other leading law firms in denouncing the assertion by former SEC commissioner and current NYU Law professor Robert Jackson and Yale Law School professor John Morley that special purpose acquisition companies (SPACs) are in fact investment companies and can be sued as such under the Investment Company Act of 1940 (ICA).
Jackson and Morley recently backed three shareholder derivative lawsuits against SPAC directors and sponsors, claiming SPACs have violated the ICA because proceeds from their initial public offerings are invested in short-term treasuries and qualifying money market funds, and have indicated that they plan to file dozens more.
In a letter published by SPACInsider, the law firm signatories explained that under the ICA, an investment company is one that is primarily engaged in investing, reinvesting or trading in securities. In contrast, SPACs, the signatories argued, are primarily engaged in carrying out business combinations with other companies within a specified period of time. The idea that SPACs are investment companies under the ICA is “without factual or legal basis,” the letter notes, adding that “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.”
