When Bill Ackman’s plans for his special purpose acquisition company to invest in Universal Music Group were nixed by the Securities and Exchange Commission in July, his SPAC’s retail investors had some pretty harsh words for the hedge fund manager.
But now those same people — who are deep in the red on their bets — are backing Ackman, whose SPAC is facing litigation that could hinder its efforts to find a new partner and recoup investors’ losses.
Last week, 62 investors joined forces on the Reddit forum dedicated to the SPAC, Pershing Square Tontine Holdings (whose stock ticker is PSTH), to file an amici curiae brief in support of Pershing Square’s attempt to dismiss the lawsuit. These investors are facing off against another Tontine shareholder, serial plaintiff George Assad, a 76-year-old Massachusetts stock broker.
“George Assad has done more to [expletive] me over than Bill Ackman could have dreamed of doing,” a Redditor who goes by Turbomattk, wrote Institutional Investor in a request for comments on the subReddit dedicated to PSTH.
In their brief, the retail investors argue that the lawsuit, which was filed in Manhattan federal court in August by Assad with the help of two university law professors and other lawyers, is a “misguided attempt to usurp the SEC’s authority to regulate SPACs.”
“I think the plaintiff's true motive is to harm PSTH shareholders,” Syed Moazzam Ahmed, a retail investor who said he had reached out to Pershing Square for help in finding an attorney, told II. Ahmed was one of the many quoted by II in an August 11 article detailing the millions of dollars retail investors had lost on Tontine. Ahmed said he is now down $2.6 million on the bet, “plus options.”
Less than two weeks after that article was published, the complaint against Pershing Square and Tontine was filed by Assad “directly on behalf of himself and all others similarly situated.” At the time, the law professors involved in the lawsuit reportedly said they wanted to use the litigation to reform the SPAC market, and they quickly filed copycat lawsuits against two other SPACs.
But if they thought other Tontine investors would join their cause, they were mistaken.
“George Assad does not speak for PSTH investors. He is only one and I thought we live in a civilized democracy,” Redditor thunder_muscles responded to II on the subReddit. “Let me also reiterate that I do not appreciate him and his lawyers putting words or anything else in our mouths.”
Those behind the amici brief, who collectively own $25 million worth of Tontine, argue that they do not view the SPAC as an investment company, which is the crux of the plaintiff’s legal argument. Instead, they view it as a vehicle “formed to identify and complete a merger with private, large capitalization high growth companies.”
Plaintiff Assad accuses Tontine of breaching the Investment Company Act of 1940 because it holds securities, which the act forbids. But all SPACs do this. After going public, they place the proceeds in a trust, where they hold government securities and money market funds until they use the cash to help purchase a privately held company, thereby taking it public.
The amici brief notes that the SEC has never said that SPACs are governed by the Investment Company Act.
After the brief was filed, plaintiff lawyers fired off a response to the court, complaining that the Redditors had reached out to Pershing Square investor relations looking for an attorney to help with filing the brief, as mentioned both on Reddit and in the brief itself. (Pershing Square did help these people find an attorney, but it did not pay any legal fees.) Plaintiff lawyers have also asked for the SEC to weigh in on the litigation and have even mentioned the SEC’s concerns over Ackman’s new vehicle, a special purpose acquisition rights company, or SPARC, which is unrelated to this case.
While the battle drags out in court, the investors are nursing big losses. According to the amici brief, the average price the retail investors supporting it paid is $26 per share, substantially higher than the roughly $20 per share it has traded at ever since the deal with Universal was canceled.
Ackman has been looking for a new merger partner, but the lawsuit hangs over the efforts. “It seems as if its likely purpose is to make PSTH appear less attractive to potential targets,” said Ahmed.
Redditors are also furious about how the response to their brief has been received by plaintiff Assad. “He attempted to paint us as not understanding the lawsuit because of the language we use,” said riggs124, who insisted that was not the case.
(Assad’s lawyers had quoted one of the Redditors as saying, “Okay I’m in. Don’t even really understand what I’m doing here but [expletive] George Assad.”)
An individual who goes by IAMvpd on Reddit said he wrote that expletive, and repeated it in a comment to II. “I did definitely jump on the opportunity to join in on the Amicus Brief when it was brought to us here,” he added. “Was proud to be part of it. George Assad has a long history of this type of trivial litigation, and in my opinion his ambulance chasing is harming the potential of our investment.”
Ackman said in a letter to investors last summer that Assad is merely a “prop” for the law professors and other lawyers behind the complaint. The same lawyers and firms have also filed the two other similar lawsuits. They include former Securities and Exchange Commissioner Robert Jackson, a New York University law professor who was one of former President Trump’s Democratic nominees, and Yale Law Professor John Morley.
The hedge fund manager recently said that the lawsuit would go away if the SPAC enters into a merger agreement with an operating company. In a call to investors in his publicly traded hedge fund recently, he also indicated that should a merger be thwarted by the lawsuit, the liability to the plaintiffs “would be significant in that circumstance.”