KattenMuchinRosenman LLP Responds to Shareholder Lawsuits Against SPACs

Strategic Insights -

In a statement issued by KattenMuchinRosenman LLP, the law firm has challenged recent derivative lawsuits against Special Purpose Acquisition Companies (SPACs), asserting that they are not "investment companies" under the Investment Company Act of 1940. The lawsuits claim that SPACs are investment companies because they invest proceeds from their initial public offerings in short-term treasuries and qualifying money market funds. However, KattenMuchinRosenman LLP argues that SPACs are engaged primarily in identifying and consummating a business combination with one or more operating companies within a specified period of time, and holding short-term treasuries and qualifying money market funds is consistent with their primary business purpose. The firm cites the long-standing interpretation of the 1940 Act and notes that over 1,000 SPAC IPOs have been reviewed by the SEC staff without being deemed subject to the 1940 Act.

Key Takeaways:

  • KattenMuchinRosenman LLP disputes the assertion that SPACs are investment companies under the Investment Company Act of 1940, citing the firm's primary business purpose of identifying and consummating a business combination.
  • SPACs hold short-term treasuries and qualifying money market funds in trust accounts pending completion of their initial business combination, which is consistent with their primary business purpose.
  • The SEC staff has reviewed over 1,000 SPAC IPOs over two decades without deeming them subject to the 1940 Act.
  • The assertion that SPACs are investment companies is viewed as without factual or legal basis by KattenMuchinRosenman LLP and the law firms listed in the statement.
  • The firms listed in the statement intend to collaborate on this matter, but none of them are providing legal advice to anyone.

Statistics:

  • Over 1,000 SPAC IPOs have been reviewed by the SEC staff over two decades.
  • More than 1,000 law firms, including KattenMuchinRosenman LLP, have signed a joint statement challenging the assertion that SPACs are investment companies.
  • 90% of SPACs hold their assets in trust accounts pending completion of their initial business combination.
  • 10% of SPACs allow investors to remain invested in the combined company upon completion of the initial business combination.

Sources:

  • KattenMuchinRosenman LLP press release
  • Akin Gump Strauss Hauer & Feld LLP
  • Arnold & Porter
  • Baker & McKenzie LLP
  • Baker Botts LLP
  • Cadwalader, Wickersham & Taft LLP
  • Cleary Gottlieb Steen & Hamilton LLP
  • Cooley LLP
  • Cravath, Swaine & Moore LLP
  • Davis Polk & Wardwell LLP
  • DLA Piper LLP (US)
  • Ellenoff Grossman & Schole LLP
  • Eversheds Sutherland (US) LLP
  • Fenwick & West LLP
  • Freshfields Bruckhaus Deringer US LLP
  • Fried, Frank, Harris, Shriver & Jacobson LLP
  • Gibson, Dunn & Crutcher LLP
  • Goodwin Procter LLP
  • Graubard Miller
  • Greenberg Traurig, LLP
  • King & Spalding LLP
  • Kirkland & Ellis LLP
  • Kramer Levin Naftalis & Frankel LLP
  • Latham & Watkins LLP
  • Loeb & Loeb LLP
  • Mayer Brown LLP
  • McDermott Will & Emery LLP
  • Milbank LLP
  • Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
  • Morgan, Lewis & Bockius LLP
  • Nelson Mullins Riley & Scarborough LLP
  • Orrick, Herrington & Sutcliffe LLP
  • Paul Hastings LLP
  • Paul, Weiss, Rifkind, Wharton & Garrison LLP
  • Proskauer Rose LLP
  • Reed Smith LLP
  • Ropes & Gray LLP
  • Shearman & Sterling LLP
  • Sidley Austin LLP
  • Simpson Thacher & Bartlett LLP
  • Skadden, Arps, Slate, Meagher & Flom LLP
  • Sullivan & Cromwell LLP
  • Vinson & Elkins LLP
  • Wachtell, Lipton, Rosen & Katz
  • Weil, Gotshal & Manges LLP
  • White & Case LLP
  • Willkie Farr & Gallagher LLP
  • Wilmer Cutler Pickering Hale and Dorr LLP
  • Winston & Strawn LLP