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Bill Ackman SPAC sued, plaintiffs say directors were promised 'staggering compensation'

Bill Ackman's troubled SPAC was hit with a lawsuit Tuesday alleging the blank-check company promised "staggering compensation" to directors and asking that the entity's special status be revoked.

The plaintiff's lawyers — former Securities and Exchange Commission commissioner Robert Jackson and Yale law professor John Morley — claim that Pershing Square Tontine Holdings isn't an operating company at all. Instead, they say, Ackman's SPAC is an investment firm, just like his hedge funds. They say the SPAC should adhere to the Investment Company Act of 1940.

"By telling the world that PSTH is not an 'Investment Company' as that term is defined in the ICA, Defendants have structured PSTH so as to charge its public investors what amounts to hundreds of millions of dollars in compensation," the lawsuit said.

"Under the ICA and [Investment Advisers Act of 1940], the form and amount of this compensation are illegal," it said.

The Investment Company Act and the Investment Advisers Act are the primary laws governing investment companies and investment advisers, and they give the Securities and Exchange Commission the power to regulate these entities.

SPACs, or special purpose acquisition companies, are shell corporations listed on a stock exchange with the purpose of acquiring a private company and taking the company public.

The lawsuit, filed in U.S. District Court in Manhattan, took issue with the compensation that the SPAC's directors would have received from repurchasing warrants. Warrants are a deal sweetener that gives investors the right to buy a share of stock at a certain price before a certain time.

"The Company agreed to repurchase some of those warrants at a valuation that implied the warrants were worth, in the aggregate, more than $880 million — thirteen times what the Sponsor and Director Defendants originally paid for them," the lawsuit said.

"This staggering compensation was promised at a time when the returns to the Company's public investors have starkly underperformed the rest of the stock market. That is hardly the arms'-length bargain the ICA and IAA demand," the case filing said.

Pershing has said that Ackman had waived his right to compensation in the now-scrapped deal to buy 10% of Vivendi's flagship Universal Music Group, and has noted that the billionaire eventually pulled the deal in July, citing concern from the SEC.

The Universal Music deal would have left $1.5 billion in residual cash in Ackman's SPAC and given investors warrants in a new vehicle that would pursue another acquisition down the road.

Ackman previously told CNBC that regulators expressed concern that the new entity being created as part of the deal would become an investment company.

A spokesperson at Pershing Square said the complaint bases its allegations, among other things, on the fact that PSTH owns or has owned U.S. Treasurys and money market funds that own Treasurys, as do all other SPACs while they are in the process of seeking an initial business combination.

"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. We believe this litigation is totally without merit," the spokesperson said.

The New York Times first reported the lawsuit Tuesday morning.

SPACs are getting hit by a wave of class-action lawsuits as more hyped-up deals turn out to be flops and shares dropped.

Following a record first quarter, the SPAC market came to a screeching halt, with issuance dropping nearly 90% in the second quarter as regulatory pressure mounted.

Correction: This story was revised to correct that the lawsuit alleged that the "staggering compensation" was promised to directors. A previous version misstated the allegation in the lawsuit.

— CNBC's Dan Mangan contributed to this report.

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On June 13, a Reddit user calling himself Krurd posted a warning on the social media site: “Don’t buy calls on pre-DA SPACs.”

Krurd, as it turns out, is a 35-year-old unmarried Chicago psychiatrist who had invested, and subsequently lost, nearly $1 million — all of his savings — in call options on Bill Ackman’s special-purpose acquisition company, Pershing Square Tontine Holdings, before it found a merger partner and inked a definitive agreement, or DA. 

SPACs are simply publicly traded boxes of cash — blank-check companies — that exist to take a private company public via merger. Until that time, however, investors in a SPAC have no clue what they are buying. That hasn’t stopped them from rushing in.

“Just because I have specialized training doesn’t mean I can’t be just as much of a fool as the guy next door,” the psychiatrist lamented to Institutional Investor in an hour-long phone conversation in July.

Raised in California as the son of Indian immigrants — his mom was a teacher, his dad an IT consultant — he had no expertise in finance but started playing the market with the extra money he had earned moonlighting as a resident doctor. In two years, he had saved more than $300,000. (The psychiatrist asked that II not reveal his name.)

With his student loan payments on hold during the Covid-19 pandemic and his working hours spent in either hospitals or nursing homes, he turned to Robinhood, the popular trading app.

Last fall, he started hearing about the boom in SPACs, and Ackman’s Tontine stuck out: It was the largest, with more than $4 billion to shop for a company. Ackman, a legendary hedge-fund manager who’d just made $2.6 billion on a timely Covid short bet, was behind the SPAC, and he claimed it was the most investor-friendly one ever. 

In November, when Ackman told investors in his hedge fund that he expected to be able to announce a deal with a target company by the end of the first quarter, the psychiatrist jumped in. 

The SPAC market was red hot, with SPACs sponsored by venture-capital guru Chamath Palihapitiya and former Citigroup investment banker Michael Klein also soaring. In early February, Ackman tweeted a rap video about SPACs minting money, and Redditors went crazy. “That video literally single-handedly caused the stock to rise 10 percent,” recalls the psychiatrist.

The sense of urgency was palpable. “It was like, okay, this is coming very soon. If you don’t get in now, you’re going to miss it,” he says. “There’s just that frenzy of wanting to get in on the ground floor. It’s like getting in an IPO at the ground level” — something that is unavailable to retail investors and a key reason why they buy shares of SPACs before deals are announced. 

By March, the psychiatrist was plunking all of his capital into call options on Tontine, which goes by the stock symbol PSTH. “Whatever money I had, I pretty much was putting it all into buying more of it,” he says.

At one point, his stake in Tontine was worth over $1 million on paper. He lost it all when his June 18 calls — with a strike price of $25 — expired worthless; the stock was around $23 at the time.

The Reddit gang had convinced themselves that Ackman’s Tontine was going to merge with a unicorn like Stripe, the online payments processor, or Elon Musk’s Starlink — largely because Ackman himself had joked about “marrying a unicorn” when he launched his SPAC last July. The media was also obsessed with the unicorn theme. But most everyone seemed to ignore the fact that Tontine’s prospectus listed unicorns as just one type of company that Ackman was chasing.

And when a deal was finally disclosed on June 4, Tontine’s partner wasn’t a unicorn, the moniker for a private startup valued at more than $1 billion. Moreover, there would be no merger. In a highly unusual move, Tontine had agreed to take a 10 percent stake in the upcoming spinoff of Universal Music Group from French conglomerate Vivendi. There would be money left over for another deal and a chance to get in on the ground floor of a third vehicle. 

The structure was too complicated for both investors and their brokerages to quickly unpack, and the stock, along with the warrants and options attached to it, tanked. Within weeks, the Securities and Exchange Commission stunned Ackman, essentially killing the deal by telling his lawyers that it did not meet the New York Stock Exchange’s requirements for a SPAC — even though Ackman said on CNBC that the NYSE had given him the go-ahead months earlier.

By the time the deal fell apart, the psychiatrist’s savings had already evaporated. He is now scrambling to make quarterly tax payments to the IRS, while owing $350,000 in student loans.

“I considered this a safe, calculated bet,” he says. So did a lot of people, including 16 others II interviewed by phone, Zoom, direct message, or in person. But as they all learned, there is little safety in SPACs — especially in the call options on those that haven’t found a partner. 

The rise of Robinhood and the frenzy surrounding GameStop Corp. earlier this year signaled the growing importance of retail investors. The stock market had been largely dominated by institutional investors since the crash of 2008, but Covid-19 and the Federal Reserve’s accommodative monetary policy scrambled the playing field. As many as one-third of Tontine’s investors were retail investors at the time of the Universal deal announcement, according to Ackman. 

In January, members of a Reddit forum called WallStreetBets gained notoriety when they almost took down prominent hedge fund Melvin Capital Management after glomming onto GameStop, which they knew Melvin was short. The Reddit insurgency was billed as class war against the elites, and those who bet on so-called meme stocks in a torrid, topsy-turvy market became big news.

But there are plenty of little guys who aren’t winning — and scant attention has been paid to them. 

Most are too humiliated by their losses to speak on the record, saying they are worried about the impact public disclosure would have on their careers. Those contacted by II provided their real names and life stories with the understanding that their names would not be published. 

These men — and they all happen to be men — are immigrants, first-generation Americans, and children of the blue-collar working class who have excelled in their professions. They are now engineers, small-business owners, doctors, consultants. Some went to Harvard, Princeton, UCLA. Many were the first in their families to attend college; a few are still students.

They are millennials — ranging in age from 24 to 39 — who live in New York, California, Illinois, Maine, Utah, and Texas, as well as Germany and Canada. They all lost money in Tontine — in at least one case more than $2 million — as SPAC mania swept through the stock market like wildfire over the past year.

Egged on by chatter on Reddit and Twitter, they took the YOLO mantra to heart, borrowing on margin or buying cheap but risky call options that could offer mouthwatering returns. 

Occasionally these retail investors dragged friends and family members along with them. One 31-year-old German college student, who was the first in his working-class family to attend university, says he put his family’s €250,000 ($294,000) savings — most of it from his grandparents — into Ackman’s SPAC. He told II he had lost €80,000 so far.

The student was all but certain that investing alongside hedge-fund legend Ackman was the best play to make — and he was not alone in that assessment.

“I looked up to Ackman,” says a man who goes by Adam on Twitter. He is studying finance while working part time at Citi and was hoping to use his Tontine winnings to pay his college tuition. Instead, he says, he had to take on a second job at a diner after losing so much money trading PSTH options. 

Adam was one of Ackman’s biggest fans, helping start on Twitter what became known as the PSTH Support Group, which became a self-acknowledged cult idolizing Ackman. At one point, its members numbered close to 50 people. On Reddit, a forum dedicated to PSTH has more than 16,000 members.

The PSTH Support Group members admired Ackman’s social conscience, as evidenced by his philanthropic activities, and obsessed over his handsome looks and silver hair, while scanning his every word or tweet for clues about the eventual SPAC target.

These young investors were aware that there is a lot of froth — even fraud — in the SPAC market, which has become a hunting ground for short sellers.

But the Tontards, or Tontinites, as they began to call themselves, were convinced that Ackman’s SPAC was different. And it is. Ackman got rid of some of SPACs’ most egregious features, like free shares for sponsors (like himself), that have led to bad deals. Its warrant structure is also novel, incentivizing investors to hold the stock after a deal announcement. “It was clear to me that this was a new kind of vehicle. To me, the warrants were the unique selling point of PSTH,” says the German investor.

And so they rolled the dice. Many of those II interviewed ended up putting most, if not all, of their savings into Ackman’s SPAC.

By last fall, the SEC was growing concerned about what the explosion of blank-check companies portended for retail investors. Most investors in SPACs have lost money over time, with a Renaissance Capital study last year showing a median loss of 29 percent between 2015 and September 2020 for the companies’ shares post-merger. (Ackman’s first SPAC, with Burger King, notably has defied the odds, with a 19 percent annualized gain over almost a decade.) 

Regulators also began to cast a wary eye on Robinhood Financial, which has taken heat for a variety of abuses. For example, the Financial Industry Regulatory Authority recently imposed a $70 million fine on the company for failing to properly vet customers before allowing them to make risky options bets, among other allegations of misconduct. (Robinhood neither admitted nor denied the charges.)

The trading app has been criticized for its creation of what’s become known as “gamified” investing. “When you put money into an account in Robinhood, it causes confetti to come out of the screen; it tries to draw you in,” the Reddit user known as Krurd explains. 

Robinhood also makes trading options seem easy. “They dumb it down for you,” he says. “If I had not used Robinhood, I would not even know how to trade options. When I look at Fidelity for buying options, it’s like, ‘Okay, this is way too complicated.’ I would just be like, ‘You know what? Forget about it. I’ll just buy the shares.’”

As another retail investor in Ackman’s SPAC puts it, “People are doing this stuff en masse with less sophistication these days. The technology’s sophisticated, but the people on the other side of it are less sophisticated. The problem is that the retail investor doesn’t live in the same world.” 

And that world has little room for big errors.

As hefty as the psychiatrist’s losses were, they were not as disastrous as those of a 39-year-old software engineer who had saved $1.6 million over 20 years — ever since he began working at the age of 18. Until 2020, he had socked all of it away in a Chase savings account because, he says, “I didn’t trust the stock market.”

When the software engineer was in second grade, his family emigrated to the U.S. from Pakistan, settling in the New York City borough of Queens. (Nine of the 17 men II contacted were either immigrants or first-generation Americans. In addition to Pakistan and India, their families came from Afghanistan, Vietnam, and the West Bank.)

After graduating with a degree in computer science from a local college, he began his successful career, eventually moving to a big city in the South, whose name he asked II not to reveal.  

Last year, the software engineer — who works as an independent consultant — finally decided to take the plunge and put his money into the stock market, setting up an account at Fidelity. He was divorced, with no children, but was giving his retired parents — both of whom have serious health issues — $3,500 a month to help make ends meet. They also had moved from New York several years ago to live near him in a house he’d bought them. 

“They know nothing about this,” he says. “They don’t even know what a stock is.”

By last fall, friends were talking up Ackman’s SPAC. The software engineer decided it was the only stock he would buy, sinking the entire $1.6 million into it. 

“Ackman just sounded very confident. I trusted the guy. I thought he knew what he was doing,” he says.

At first, the software engineer bought common stock, but later, he says, “like an amateur” he transferred shares into expensive, in-the-money call options with a strike price of $22 — well below the $30 where the stock was trading at the time. “I thought it was safe,” he says.

The highest his account’s value ever reached was $2 million, but had those options worked out, he calculates he would have made almost $4 million.

They expired worthless on July 16, a few days before Ackman announced the SEC had torpedoed his plans.

“Everything is my fault,” the software engineer says. “It’s not Bill’s fault.”

These days, he is so depressed he has trouble getting out of bed, and his work performance is suffering. “I’m not mentally there. I’ve got to pick myself up or this is going to ruin my life even further.” 

For those trying to build wealth quickly from nothing but hard work, the lure of options isn’t hard to fathom. 

While the S&P 500 returned 18.4 percent last year, many people lost their savings during the temporary collapse of the market during the early days of Covid. For some, buying call options became a quick way to make it all back, as the stock market seemed to be on a perpetual upward trajectory.

“You figure out that through options and derivatives you can make literally hundreds of percent in a matter of minutes or days,” explains a 32-year-old Tontine investor who goes by Marvin on Twitter.

“I'm not uninformed about it,” says Marvin, who grew up in a blue-collar family in a Western state, has an MBA from a major West Coast university, and is in the U.S. military.

“I knew exactly what I was stepping into,” he says. 

Some investors in Ackman’s SPAC no doubt dreamed of becoming fabulously wealthy — and fast. Others wanted to buy a home or pay off mortgages or student loans. To hear men like 31-year-old Marvin talk, the concern was about financial stability. 

Married but without children, Marvin says he hoped his winnings would give him the security his parents lacked. “They always fought about money,” he says.

Now he worries about their finances. “If my mom or dad ever has to go to a retirement home, they don’t have $100,000 a year for a retirement home, so it’s coming out of me. And if it’s not coming out of me, I look like a POS, so . . . stuff like that is a real thing. Because guess what doesn’t cover retirement-home living or taking care of the boomer generation? Medicare, Medicaid.”

Marvin says he lost almost $600,000 trading options on PSTH.

“The gambler’s fallacy is always the high end,” he says. “You think you’re invincible until you’re not, and that’s generally what happened to me.”

Across the country, a 30-year-old small-business lender in Portland, Maine, who started out last September with just $1,800 to invest, has a somewhat similar story. In four months, trading options had turned that $1,800 into $26,000 — which he subsequently lost on PSTH options that expired worthless.

“I was riding a wave in time with a unique bull market. And I just thought if I turned $1,800 to $26,000 in four months, if I kept that same percentage gain — I did the math — in one year I could’ve gotten to $1 million. And that was where I was aiming to stop,” he says.

The small-business lender — who says his job pays under $80,000 per year — had planned to take his winnings and pay off the mortgage on his father’s home as well as his own. “My father just bought a home for the first time, and I know he’s very stressed out about it. If I turned that $26,000 into just $200,000 [after taxes], I would’ve paid down his mortgage. That was a dream in my mind. I wasn’t going to buy Gucci belts. I wasn’t going to go to a club and throw it around.”

The Maine investor is also a recovering alcoholic and drug addict — and he found the addictions eerily alike. 

“I’m kind of your standard alcoholic. One is too many, and there’s never enough,” he says. He became similarly obsessive about trading. “Trading options was addictive, like cocaine. It was instant gratification,” he says.

“I was doing 30-day expiries. I would know whether I was going to make a 100 percent gain in 30 days. I would watch it, watch it, watch it. And if it went up to 100 percent after three days, I would sell it. But you have to be on top of it, and there’s a lot of adrenaline that is kicked in. And that’s very addictive.”

The inherent leverage of options works great on the upside, of course. But in contrast to common stock, an investor can’t just buy and hold. Options trading involves both a time element (the expiration date) and a specific price (the strike price). An investor has to be right on both, trading the volatility along the way. 

Ackman knew that some retail investors had already lost money buying call options on his SPAC — they yelled about it on Reddit and Twitter every day (and also sent Pershing Square emails) when a deal did not materialize in the first quarter, as he had expected. So when Ackman reluctantly acknowledged at a Wall Street Journal event that he was in talks with a target company, and that a deal might happen within weeks, he quickly warned against buying short-dated options. 

“What we don’t want people doing is speculating, buying short-dated options on our SPAC,” he said. 

Instead of calming down, however, investors loaded up on weekly options. After all, such options are incredibly cheap and, if a deal is announced and the stock runs up, the return could be huge — perhaps a $100,000 win after spending $5,000 on several weeks’ worth of weeklies, one investor explains.  

For high-achieving immigrants with good-paying jobs, there is another imperative that led some to take big risks.

“You have to break the cycle,” explains one, whose father worked as a grocery store clerk after his family moved to the U.S. in the 1990s. The son, who is 30 years old, received a master’s degree from Harvard in a subject unrelated to finance. He now has a public policy job with a prestigious institution.

Last year, he got into the stock market for the first time, putting $50,000 of his savings into Tesla, which grew to $100,000 by the time he sold out. He took that $100,000 and put it all in PSTH. 

Around 80 percent of his stake went into long-dated options, called Leaps (for long-term equity anticipation securities), with a December 2021 expiration date and a $30 strike price. The rest was in common shares. After Ackman’s Universal deal was nixed, he sold out of everything — losing about 80 percent of his investment.

It may seem reckless to put everything on Ackman’s SPAC, but the Harvard grad has an explanation for it, saying even Warren Buffett warns against diversification.

“When you try to overdiversify, you don’t have high returns, and you split your 100K into 20 stocks or whatever,” he says. “And then if one of those runs up, what is it? Twenty percent of the total? Imagine what you would return if you had done your homework and focused on one stock.”

The lesson he learned isn’t about diversifying or avoiding options, though. “I’m done with SPACs,” he says. “This is the worst thing that has ever happened to me.”

As novice investors struggle to make sense of what happened and why, there seems to be plenty of blame to go around.

In retrospect, the psychiatrist believes “mob mentality” is at fault. “It’s how you can get caught up in something and not be able to separate yourself and think, ‘Is this actually the right thing, or am I making the right decision?’ Because you’re just so caught up in it.”

The enthusiasm reached a fever pitch during the GameStop mania. And when GameStop shares retrenched at the end of January, investors transferred their winnings there to PSTH, several told II. PSTH shares peaked in mid-February, along with other SPACs. By one measure — the IPOX SPAC Index — SPACs are now down more than 26 percent for the year. Tontine is trading slightly above its IPO price of $20, a decline of about 27 percent this year. 

Under SPAC terms, investors can redeem their shares for $20 after a deal is announced, providing a floor. But retail investors bemoan that they didn’t get in at the IPO price, and many believe Ackman misled them. Why, they ask, didn’t he dissuade the Reddit crowd of its unicorn fantasies? 

“There were never any denials,” says Marvin. “There were so many rumors floating around. He didn’t deny a single one. And I think that’s what culminated in the hype and the sentiment, which got everything kind of inflated. Once it’s inflated, it’s like, well, did you meet expectations? Nope, not at all.”

As a matter of policy, however, Ackman never confirms nor denies rumors. “If he were to deny every false rumor, eventually the rumor will hit on the actual target and he won’t be able to deny it,” explains an investor in Pershing Square Holdings, Ackman’s publicly traded hedge fund.  

In an interview on CNBC following Pershing Square’s announcement that Tontine had canceled its plans to invest in Universal, Ackman acknowledged that the complex structure he created to do that deal was “very bad if you’re levered or if you own options” — which is the case for many in the retail crowd. But as he noted, Tontine had always been designed as a vehicle for long-term investment.

That said, the SEC’s decision to thwart the deal at the 11th hour pleased no one. It did nothing to help those whose options had already expired worthless, creating the biggest chunk of losses. Shares of PSTH fell further on the news, which only exacerbated the pain for shareholders, many of whom had finally decided the Universal deal was better than they had originally thought. 

That was the conclusion of one small-business owner in Chicago — another self-made immigrant — who put $13.2 million in PSTH, building his stake on margin and $2 million in GameStop winnings. He calculated the change in the warrants structure under the complex Universal plan and says he realized that they were actually richer than before. The businessman, who goes by @moazzam0_reddit on Twitter (he is also on Reddit), is down $2.3 million on PSTH, but says he bought more shares when the Universal deal failed.

“We know Bill found a hidden gem like UMG [Universal] right before it started to shine,” he says. “I don’t think our money will sit idle for long.”

Other Tontine investors are also hanging on.   

Bassel Ahmad, a 27-year-old graduate student at John Jay College of Criminal Justice in New York City — and the only person II interviewed who agreed to use his real name — is nursing his losses while spending the summer with family near Ramallah in the West Bank.

Ahmad, who was born in Brooklyn and lives there with his siblings, began trading stocks a few years ago and says his initial $60,000 Tontine stake — now worth around $50,000 — was built on earlier winnings in stocks like Nikola Corp., a SPAC high flier, which he sold before it crashed back to earth on allegations of fraud. “I lost a lot on PSTH, but it doesn’t outweigh how much I’ve made in the last three years,” he says.

He has also held on to his options, which are down as much as 60 percent, and says he knew all along they were risky.

“Even on Reddit,” he says, “people would recommend not to buy the options.”

One Redditor who last November warned others not to buy options on PSTH is a 33-year-old project engineer for the aerospace industry who lives in Utah. 

“I said that early on because I don’t want people to lose money on options,” says the investor, who goes by Mattress_King on Twitter because his net worth — about $5.5 million — came from leveraged bets on another SPAC, mattress maker Purple Innovation, which he invested in after the merger. 

Mattress_King, who is married with three children, has $2 million in Ackman’s SPAC — mostly in common stock. As a result of his cautious approach, he is only down about $100,000 on the position and is sticking with it. 

Like so many others, Ahmad did not heed Mattress_King’s advice.

“People like me who are young and like the gambling aspect of it still buy the options. I mean, I personally love playing lottery cards,” he says. “Lottery cards and casinos, I had to stop. It was a crazy addiction.”

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Bill Ackman’s SPAC Gets Sued

DealBook Newsletter

The lawsuit could have far-reaching consequences for the entire blank-check industry.


An existential question for SPACs

Pershing Square Tontine Holdings, the special purpose acquisition company run by the billionaire hedge-fund investor Bill Ackman, got sued this morning in a novel case that could have far-reaching implications for the SPAC industry.

The case, which is being argued by Robert Jackson, a former S.E.C. commissioner, and John Morley, a law professor at Yale, contends that Ackman’s SPAC isn’t an operating company, but is actually an investment company like Ackman’s funds, which should be regulated by the Investment Company Act of 1940. If certain SPACs were regulated as investment companies, much of the industry could be affected because it would make it harder for anyone in the investment business to participate in a SPAC.

SPACs are already under fire from regulators who have pledged to tighten protections for investors, and they face a rising number of class-action lawsuits by aggrieved shareholders. Around 600 SPACs have gone public over the past year and SPAC-linked merger deals worth more than $700 billion have been announced over that time. Securities law experts have raised questions about whether SPACs are used as a means to avoid the more onerous rules that apply to investment funds. The lawsuit highlights this increasingly common complaint.

To recap, a SPAC is a public shell company formed to acquire and operate a private company. This lets a private company go public with less scrutiny than a traditional I.P.O. Many SPACs are started by professional investors with investment businesses that contribute services to the SPAC, like Ackman and his hedge fund, Pershing Square Capital Management.

“Investing in securities is all the company has ever done since its I.P.O.,” the complaint says of Pershing Square’s SPAC. Simply buying some stock is not what a SPAC is meant to do, the lawsuit argues. Yet Ackman negotiated a stock deal between his SPAC and Universal Music Group. (He originally pursued a merger.) The arrangementwas complicated, with the Pershing Square SPAC spending $4 billion to buy a 10 percent stake in the company, which was already being taken public by its parent, Vivendi. The S.E.C. questioned the terms, which raised concerns that Ackman’s SPAC was not a SPAC at all.

A moot point? Ackman abandoned the Universal Music deal last month, admitting in a letter to investors that he had underestimated regulatory and shareholder resistance to the complex transaction. But the new lawsuit asks the court to declare that Pershing Square’s SPAC is an investment company, and to find that it was deliberately mischaracterized to avoid legal requirements to the detriment of investors. The suit is also seeking to rescind contracts worth hundreds of millions of dollars to members of the company’s board.

If the suit succeeds, it could make professional investors who have found SPACs attractive wary of potential legal challenges, chilling the market. Proving damages will be difficult because the Universal Music deal was scrapped. But more important, perhaps, the case attempts to address underlying issues about the motivations of some SPAC sponsors. And its analysis of the meaning of investing in securities — part of any M.&A. deal — raises existential questions about the purpose and treatment of SPACs in general.

The irony is that Pershing Square’s SPAC was more investor-friendly than most. It was structured so that its sponsors would only be paid if its deal proved successful over time. Most other SPACs give sponsors shares and warrants that pay out regardless of the performance of the company after a merger.

Ackman declined a request for comment on the suit.


Economists fear that the Delta variant is slowing the economic recovery. They expect a drop in retail sales in July, especially for travel-related spending, in numbers released later today. Covid hospitalizations in some states are at a high, and the number of hospitals with nearly full I.C.U.s has doubled in recent weeks.

Covid booster shots for Americans may start next month. As caseloads surge, the Biden administration is likely to offer an additional vaccine dose to nursing-home residents, health care workers and emergency workers first, with the aim of boosters for most Americans eight months after a second dose.

China’s internet companies brace for another regulatory blitz. Shares in Alibaba, Tencent and dropped after China’s market regulator published draft rules that would tighten the government’s grip over technology platforms, continuing a crackdown.

Jeff Bezos’s Blue Origin is suing NASA. Bezos’s firm said the space agency followed flawed processes in awarding a $3 billion lunar-lander contract to Elon Musk’s SpaceX. NASA is Blue Origins’ biggest customer; observers say Bezos is risking the lawsuit because he sees the lunar project as a key to future work.

Michael Burry is betting against Cathie Wood. Burry, the investor whose anticipation of the U.S. subprime crash was made famous by “The Big Short,” revealed an investment in put options on the Ark Innovation E.T.F.. Ark is run by Cathie Wood, a tech bull with a cult following whose fund soared on investments in Tesla and other high-flying assets but has seen choppier performance of late. Burry doesn’t understand the fundamentals of the “innovation space,” she said.

Women’s health gets its first unicorn

Maven Clinic, a women’s and family health care provider, will announce today that it has raised $110 million in funding at a valuation of more than $1 billion, making it the first U.S.-based company in the sector to achieve “unicorn” status.

Founded in 2014, Maven provides a single telehealth platform for fertility specialists, adoption coaches, doulas, lactation consultants, pediatricians, child care providers and others. The company does the bulk of its business as an employee benefits vendor for companies including Bumble, L’Oréal, Microsoft and Snap.

So far, Maven says it has worked with more than 10 million women and families, and it has grown rapidly during the pandemic: Since March last year its membership has soared by 400 percent.

Maven’s recent growth spurt was driven partly by an embrace of telemedicine, said Kate Ryder, the company’s founder and C.E.O. But companies are also increasingly focused on supporting and retaining employees with families, she said, especially since the pandemic has exposed weaknesses in child care systems and inequities in health care. “Covid accelerated all digital health companies forward,” Ryder said, and people are also now “starting to prioritize health equity, women’s health and family health.”

About 15 percent of in-person referrals through the platform are for child care support. Since March last year, about a quarter of the appointments scheduled were with mental health providers — an indication of the stresses and struggles of working parents. The financing will help Maven expand its coverage to include those on Medicaid, Ryder said.

Investors in this round include Dragoneer Investment Group, Lux Capital and Oprah Winfrey.

“It did not have to end this way. I am disgusted by the lack of any planning by Afghan leadership. Saw at airport them leave without informing others.”

— Ajmal Ahmady, the head of the central bank of Afghanistan, in a harrowing Twitter thread recounting his last few days in the country.

The failed promise of fully autonomous cars

Yesterday, the federal government’s top auto-safety agency announced the broadest investigation yet into Tesla’s assisted-driving technology. Neal Boudette, who covers the auto industry for The Times, explains why fully self-driving cars, which not that long ago seemed to be just around the corner, now appear further away.

In 2016, Ford promised that it would be producing a car with no pedals and no steering wheel by 2021. Waymo, the autonomous car company owned by Google’s parent, Alphabet, has been testing a driverless ride service in the Phoenix area since 2017. And just two years ago, Elon Musk said that a million Tesla robo-taxis would soon roam the streets of American cities. Tesla even sells an upgrade right now called Full Self-Driving.

But none of these projects have gone as expected. Ford has shifted its strategy. Waymo is still testing but remains years from a large-scale commercial service. Tesla hasn’t produced a single autonomous car and has quietly acknowledged to California regulators that its Full Self Driving isn’t capable of full self-driving.

So what happened? Developing a car that can drive with no help from a human is far, far harder than the auto industry’s top experts once thought.

It’s one thing to use cameras, radar and computer chips to make a car that can stay in its lane and keep a safe distance on a highway. But it’s a vastly greater challenge to teach a computerized system to safely deal with intersections, cross traffic and construction zones, as well as drivers, pedestrians and cyclists who only sometimes follow the rules of the road.

Autonomous systems still struggle to recognize unforeseen dangers — a car suddenly changing lanes, or parked somewhere unexpected — and then choose a safe response. While driver error causes the majority of the nearly 40,000 roadway deaths that occur yearly in the U.S. each year, humans still cope better with surprises.

The risks of allowing cars to drive themselves can be seen in the fatal accidents that have come to light recently. In one 2019 crash, a Tesla operating with the company’s Autopilot system engaged came to an intersection and slammed into a parked car, killing a woman standing nearby. That accident occurred not because Autopilot isn’t capable of autonomous driving, but because Autopilot failed at the most basic function of any safety system. It simply failed to recognize an object and stop before hitting it.

Read Neal’s story about the 2019 crash.



  • Tim Hortons China, an arm of the Canadian coffee shop, is going public in a $1.7 billion SPAC deal. (Bloomberg)

  • Hachette has agreed to buy Workman, one of America’s largest independent publishers. (NYT)

  • The German publisher Axel Springer is reportedly in talks to buy a stake in Politico, deepening its partnership with the news site. (WSJ)

  • Monte dei Paschi di Siena, the world’s oldest bank, is preparing to be swallowed by UniCredit after performing poorly in a stress test. (NYT)


  • Janet Yellen will have another opportunity to reshape the Fed, this time from the outside, when Jay Powell’s term as chair expires in February. (NYT)

  • New Zealand announced a three-day national lockdown after finding one coronavirus case. (NYT)

  • “A Minimum Wage Can Create Jobs” (Times Opinion)

Best of the rest

  • The executive brought in to remake Twitter’s culture has clashed with workers over his blunt style. (NYT)

  • State Street, the firm behind the “Fearless Girl” statue outside the N.Y.S.E., is vacating its two New York City offices. (WSJ)

  • As African countries wait for doses they’ve ordered, Covid shots produced by Johnson & Johnson in South Africa are being exported to Europe. (NYT)

  • “My Years on Wall Street Showed Me Why You Can’t Make a Deal on Zoom” (Times Opinion)

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Since 2003, only 90 SPACs, or special purpose acquisition corporations, have been liquidated, but soon there may be one more: Bill Ackman’s $4 billion Pershing Square Tontine Holdings.

Ackman told shareholders Thursday night that he plans to dissolve Tontine, the largest SPAC ever launched, give investors their money back, and offer them warrants on a new security he has developed that is a twist on the SPAC format. 

It’s all contingent on approval from the Securities and Exchange Commission and the New York Stock Exchange, which he hopes to have soon.

The news was a shock to investors who’ve endured a series of disappointments surrounding Ackman’s SPAC that, as Institutional Investor has reported, left many of them with heavy losses. The stock tumbled from its peak of $34 earlier in the year and finally went below $20, its IPO price, for the first time Thursday.

In a letter to shareholders, Ackman said his latest effort was driven by a lawsuit filed against Tontine earlier this week that, while “without merit,” could still “deter potential merger partners” until it is resolved.  

If successful, the lawsuit would “imply that every SPAC may also be an illegal investment company” and have a “chilling effect” on the entire SPAC market, he said. 

So far, many investors seem to be giving Ackman the benefit of the doubt. 

Tontine’s stock fell below $20 Thursday, an indication that investors believed he would not be able to consummate a merger. But while some investors have grown wary of Ackman’s constantly shifting plans, there was no mass selling of shares on Friday. Indeed, the stock ticked up slightly during the morning and is unlikely to go much below $20, given the redemption value of $20 per share in the offing. It hovered around $19.80 at midday.

Some investors, tired of waiting, told II that they would prefer Tontine be liquidated now instead of waiting around for his new vehicle, Pershing Square SPARC Holdings, to be approved by regulators.

Pershing Square filed its registration for SPARC in June and has already received a comment letter from the SEC. “We believe we can address the disclosure and other issues that have been raised by the SEC staff,” he told investors. He added that the listing of the SPARC warrants on the NYSE would require a rule change that is also subject to SEC approval, that he is also working to obtain.

If all goes well, a prospectus for the SPARC could be filed “within the next several weeks,” according to an individual familiar with Ackman’s plans. 

Shareholders in Tontine would then have to vote on its dissolution before they get their $20 per share back and receive SPARC warrants.

The primary difference between Ackman’s SPARC and a traditional SPAC is that the SPARC does not require investors to put up any money until it has identified a merger target. Unlike a SPAC, there is not a two-year time limit on finding a target — something that Ackman likes. 

The lawsuit may have given the hedge fund manager “cover” to unwind his SPAC at a time when finding a partner is proving difficult, Joel Rubinstein, a partner at White & Case who works on SPACs, told II

A glut of SPACs has left hundreds of them searching for a merger partner, and Ackman only has 11 months left to find one.

Rubinstein said he also thinks the lawsuit is without merit, especially now that Ackman’s SPAC has abandoned plans to invest in Universal Music Group.  

The lawsuit’s main argument is that Tontine is an illegal investment company because it invests in securities. It did plan to buy Universal shares in that company’s IPO, but that plan was nixed under pressure from the SEC. Now the only securities Tontine holds — in trust — are Treasuries and money market funds that hold Treasuries. All SPACs do the same.

As Ackman explained, “The two law professors who concocted the legal theory behind the complaint conceded to the press that their motivation in bringing the lawsuit was ‘to reform’ the entire SPAC industry.”

One of the professors who is leading the suit, Robert Jackson, served as an SEC commissioner between January 2018 and January 2020, Ackman noted. During his tenure, the SEC okayed more than 100 SPAC IPO registration statements and oversaw dozens of merger transactions, he added. 

“If Mr. Jackson is so sure that SPACs are in fact illegal investment companies, why didn’t he take steps to shut them down while he was an SEC commissioner?” asked Ackman.

This lawsuit may not be the end of Tontine’s legal troubles, however. Several class-action attorneys are looking to make a case against Ackman and his SPAC, and some aggrieved investors told II they are tempted to give it a shot.


Ackman spac bill

Ackman seeks SPAC relaunch to fix lawsuit's 'harm'

Aug 19 (Reuters) - Billionaire investor William Ackman said on Thursday he would pursue changes to his blank-check acquisition company Pershing Square Tontine Holdings Ltd (PSTH.N) to address "the overhang" of a lawsuit filed against it this week.

The lawsuit, filed by former U.S. Securities and Exchange Commissioner Robert Jackson and others on behalf of a Tontine shareholder, argues that Ackman's special purpose acquisition company (SPAC) - the largest ever formed - broke the law by investing in securities while not properly registered with regulators. read more

It comes as the Securities and Exchange Commission (SEC) is taking a closer look at potential abuses at blank-check companies as these vehicles have become extremely popular.

Ackman said in a letter to shareholders that the lawsuit was meritless but could not be resolved quickly at a time when Tontine has 11 months left to find a company to merge with before having to return capital to investors. SPACs are meant to merge with private companies and usually have two years to find a target to take public.

The legal uncertainty could deter potential merger partners from entering into a deal with Tontine, and weigh on other SPACs, Ackman said.

As a remedy, Ackman said he planned to give Tontine shareholders warrants in a "better structured vehicle" which he dubbed a special purpose acquisition rights company (SPARC). The SPARC warrants would give Tontine shareholders the right to invest in a merger with a private company once the target has been announced -- unlike a SPAC, where investors tie up their money while the sponsor searches for a suitable target.

The SPARC structure, devised by Ackman and never before tested on Wall Street, would have to be approved by the SEC as well as the New York Stock Exchange (NYSE). Neither immediately responded to requests for comment.

"If we are successful in securing SPARC's approval, and I am confident that we will get it done, we will have a clear path to mitigate the harm that this litigation has and will continue to cause to Tontine shareholders and warrant holders," Ackman said.

If it gets the green light, and Tontine has yet to find a deal for itself, then Ackman said he will return the $4 billion Tontine raised from its initial public offering in July 2020 to its shareholders and also give them one SPARC warrant for each share they own.

Ackman's move and offer to "mail back over $4 billion worth of checks to investors...validates the strength of our claims and the urgent need to enforce existing investor protections in this industry," Jackson told Reuters.


Ackman last month abandoned a deal for Tontine to buy a 10% stake in Universal Music Group (UMG), which was already in the process of being taken public by its French parent Vivendi SE (VIV.PA).

It was an unusual SPAC deal that the SEC took issue with, and Ackman was forced to substitute Tontine as an investor in the deal with his main hedge fund and Pershing Square Holdings Ltd (PSH.AS), his Amsterdam-listed permanent capital vehicle.

The climbdown disappointed investors that had pushed Tontine shares as high as $34.10 in February. Tontine's stock dropped below its $20 IPO price for the first time on Thursday, as doubts grew over Ackman's ability to secure an attractive SPAC merger.

The lawsuit against Tontine took issue not just with general features of SPACs, such as investing in money market funds and U.S. government bonds, but also Tontine's doomed deal with UMG, which was not a traditional SPAC merger with a private company. Capital markets experts have said it is not clear whether the lawsuit's fallout will extent beyond Tontine.

Ackman's jittery start as a SPAC dealmaker has yet to deliver the successes he scored during his hedge fund career. His hedge fund posted returns of 70.2% return in 2020 and a 58.1% return in 2019. The successes followed double-digit losses in 2015 and 2016 and smaller declines in 2017 and 2018.

Reporting by Svea Herbst-Bayliss; Additional reporting by Radhika Anilkumar in Bengaluru; Editing by Greg Roumeliotis and Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

Bill Ackman SPAC sued, will face off against former SEC commissioner

Bill Ackman’s SPAC is a treat that is going moldy

NEW YORK, Aug 19 (Reuters Breakingviews) - Bill Ackman’s blank-check firm risks spending too long on the shelf. The hedge fund manager’s special-purpose acquisition vehicle Pershing Square Tontine Holdings (PSTH.N) is being sued by a shareholder over its now-abandoned plan to buy a stake in Universal Music Group. Regulatory ambiguity is to blame.

The lawsuit, which was filed on Tuesday, contends that Ackman’s SPAC has acted like an investment vehicle rather than an acquisition company and should therefore follow rules that require the former to register with U.S. regulators and make clearer disclosures on things like pay structure. Pershing Square’s plan to purchase a stake in Universal Music at a time when the company was already being taken public by parent company Vivendi (VIV.PA) rather than buying a whole company is one of several red flags, it says.

Ackman said the suit was without merit and that the SPAC was a natural extension of Pershing Square’s investment fund management business. But twists he added to some traditional aspects of a SPAC leave him more exposed to blowback, if not of the legal sort. Also, his high profile and the size of his blank-check company, which, at $4 billion, is the largest on record, make PSTH an obvious target. And Ackman’s day job is an investment adviser unlike, say, ex-Citigroup banker Michael Klein, who has worked in the mergers business for decades.

The root of the problem, however, is that ambiguous regulatory guidelines encourage financiers to test the limits of creativity at a time of huge interest in SPACs. Blank-check companies accounted for 14% of the $1.6 trillion of global mergers that were announced in the second quarter, Refinitiv data shows. When the U.S. Securities and Exchange Commission does refine the rules, plum pay packages for SPAC managers will probably be front and center, which may mean there’s less incentive to do deals.

Before then, the lawsuit against Ackman’s SPAC, which is a big drain on his time and reputationally risky, may deter others from adding cunning twists to the standard model. And all the while his blank-check firm is just getting moldy.

Follow @thereallsl on Twitter


- Bill Ackman’s blank-check company Pershing Square Tontine Holdings was sued by an investor, George Assad, according to a lawsuit filed on Aug. 17 in U.S. federal court in New York. The lawsuit says Ackman's special-purpose acquisition company acted like an investment company rather than a SPAC, and was required to register as an investment advisor under the Investment Company Act of 1940 and the Investment Advisers Act of 1940.

- The lawsuit pits Ackman against Robert Jackson, a law professor and former commissioner of the U.S. Securities and Exchange Commission, who will be arguing the case along with John Morley, a professor at Yale Law School.

Ackman said in a statement on Aug. 17 that the company “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."

Editing by Swaha Pattanaik and Marjorie Backman

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.


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