Law Firms Issue Statement that SPACs are Not 1940 Act Funds

A shareholder suit, with high-profile plaintiffs including former SEC Commissioner Robert Jackson, claims that SPACs should be regulated 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. A group of law firms, however, disputes that claim and together have issued a statement that SPACs do not meet the 1940 Act’s definition of registered investment companies since SPACs do not hold themselves out as being engaged primarily, or propose to engage primarily, in the business of investing, reinvesting or trading in securities. The law firms assert that “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.” They note 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. The MFDF will present a webinar titled The Nuts and Bolts of SPACs on September 22, 2021, the latest in the Forum’s investment series. The presenter will be Steve Barry, chief investment officer of Fundamental Equity at Goldman Sachs, and the moderator will be Jody Foster, independent director of Hussman Investment Trust and President/Founder of Symphony Consulting. The webinar will tackle several topics relating to SPACs, including their structure and types, the parties involved and their fiduciary duties, opportunities, risks, and what entities can invest in these vehicles. Registration for the webinar is available here.