By Svea Herbst-Bayliss
BOSTON (Reuters) -Billionaire hedge fund manager William Ackman said on Tuesday his blank-check acquisition company is not an investment firm that needs to register with U.S. regulators, pushing back against a lawsuit that alleges that his Pershing Square Tontine Holdings has improperly invested in securities.
“PSTH has never held investment securities that would require it to be registered under the Act, and does not intend to do so in the future,” Ackman said in a statement, referring to the Investment Company Act of 1940 and the Investment Advisers Act of 1940, longstanding market regulatory laws.
“We believe this litigation is totally without merit,” Ackman, who runs hedge fund firm Pershing Square Capital Management, added.
The lawsuit contends that Ackman’s special purpose acquisition company (SPAC) – the largest ever formed – has acted like an investment company rather than a SPAC that is exempt from the registration requirement.
“The SPAC is a natural extension of Pershing Square’s investment fund management business. Pershing Square operates the SPAC like an investment fund and causes it to invest in securities like an investment fund. Today’s lawsuit argues that it should be regulated like an investment fund as well,” said John Morley, a professor at Yale Law School who is one of a handful of lawyers working on the case.
The lawsuit, filed on Tuesday in U.S. federal court in New York by George Assad, an investor in the SPAC, states: “Investing in securities is basically the only thing that PSTH has ever done.”
SPACs are meant to merge with private companies and then take them public.
The Securities and Exchange Commission is taking a closer look at potential abuses within blank-check companies as these vehicles have become extremely popular. SPACs launched by Wall Street financiers as well as celebrities have raised more than $100 billion.
Ackman’s SPAC initially announced a plan that his SPAC would buy 10% of Universal Music Group at a time when it already was being taken public by Vivendi. Ackman scrapped the plan in July, saying that his hedge funds would now be making the investment amid growing concerns among regulators that the deal would not meet New York Stock Exchange rules.
He initially planned for his SPAC to distribute the Universal Music Group shares to its investors after its listing in Amsterdam next month.
The lawsuit will position Ackman against Robert Jackson, a law professor and former SEC Commissioner who will be arguing the case along with Morley. The two have long focused their scholarly research on investor protection and are working on the case together with law firm Bernstein Litowitz Berger & Grossman, among others.
The lawsuit also takes issue with fees which should be clear to outsiders. “The Defendants have received securities that under any plausible estimate are worth hundreds of millions of dollars — an unreasonable payment for the work performed,” the suit said.
Ackman said that his SPAC like all others has owned U.S. Treasuries and money market funds.
(Reporting by Svea Herbst-Bayliss and Anirban Sen; Editing by Will Dunham and Sonya Hepinstall)