Over 60 of the Nation’s Leading Law Firms Respond to Investment Company Act Lawsuits Targeting the SPAC Industry

4 min read

Recently a purported shareholder of certain special purpose acquisition companies (SPACs) initiated derivative lawsuits asserting that the SPACs are investment companies under the Investment Company Act of 1940, because proceeds from their initial public offerings are invested in short-term treasuries and qualifying money market funds.

Under the provision of the 1940 Act relied upon in the lawsuits, an investment company is a company that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities.

SPACs, however, are engaged primarily in identifying and consummating a business combination with one or more operating companies within a specified period of time. In connection with an initial business combination, SPAC investors may elect to remain invested in the combined company or get their money back. If a business combination is not completed in a specified period of time, investors also get their money back. Pending the earlier to occur of the completion of a business combination or the failure to complete a business combination within a specified timeframe, almost all of a SPAC's assets are held in a trust account and limited to short-term treasuries and qualifying money market funds. 

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.1

None of the firms subscribing to this document intends hereby to give legal advice to any person. Any person seeking legal advice should consult with an attorney.

Akin Gump Strauss Hauer & Feld LLP Latham & Watkins LLP
Alston & Bird LLP Loeb & Loeb LLP
Arnold & Porter Mayer Brown LLP
Baker & McKenzie LLP McDermott Will & Emery LLP
Baker Botts LLP Milbank LLP
Blank Rome LLP Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Cadwalader, Wickersham & Taft LLP Morgan, Lewis & Bockius LLP
Cleary Gottlieb Steen & Hamilton LLP Morrison & Foerster LLP
Clifford Chance US LLP Nelson Mullins Riley & Scarborough LLP
Cooley LLP Nixon Peabody LLP
Covington & Burling LLP Orrick, Herrington & Sutcliffe LLP
Cravath, Swaine & Moore LLP Paul Hastings LLP
Crowell & Moring LLP Paul, Weiss, Rifkind, Wharton & Garrison LLP
Davis Polk & Wardwell LLP Perkins Coie LLP
Debevoise & Plimpton LLP Proskauer Rose LLP
DLA Piper LLP (US) Reed Smith LLP
Ellenoff Grossman & Schole LLP Ropes & Gray LLP
Eversheds Sutherland (US) LLP Schiff Hardin LLP
Faegre Drinker Biddle & Reath LLP Schulte Roth & Zabel LLP
Fenwick & West LLP Shearman & Sterling LLP
Freshfields Bruckhaus Deringer US LLP Sidley Austin LLP
Fried, Frank, Harris, Shriver & Jacobson LLP Simpson Thacher & Bartlett LLP
Gibson, Dunn & Crutcher LLP Skadden, Arps, Slate, Meagher & Flom LLP
Goodwin Procter LLP Sullivan & Cromwell LLP
Graubard Miller Vinson & Elkins LLP
Greenberg Traurig, LLP Wachtell, Lipton, Rosen & Katz
Hogan Lovells US LLP Weil, Gotshal & Manges LLP
Hughes Hubbard & Reed LLP White & Case LLP
Katten Muchin Rosenman LLP Willkie Farr & Gallagher LLP
King & Spalding LLP Wilmer Cutler Pickering Hale and Dorr LLP
Kirkland & Ellis LLP Winston & Strawn LLP
Kramer Levin Naftalis & Frankel LLP  


1 Certain of these lawsuits also claim that personnel of the SPAC sponsor are acting as unregistered investment advisers under the Investment Advisers Act of 1940 by advising on the SPAC business combination (which the plaintiff incorrectly asserts constitutes advice as to investing in, purchasing, or selling securities).  The law firms listed herein also view this claim as without legal basis and do not believe that such personnel or the SPAC sponsor are unregistered investment advisers.


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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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