How Millennial Investors Lost Millions on Bill Ackman’s SPAC

Illustration by Jeremy Leung/II

Illustration by Jeremy Leung/II

“Trading options was addictive, like cocaine,” says one investor. “It was instant gratification.”

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.”