Spec Craze Overdone? ... Lawsuits Surge, Causing Controversy

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Special Purpose Acquisition Companies (SPACs), which have gained great popularity as investment vehicles in the United States, are reportedly being embroiled in a series of lawsuits, according to the Wall Street Journal (WSJ) on the 25th (local time).

According to the report, a total of 19 class-action lawsuits have been filed against SPACs in U.S. federal courts so far this year.

This is a significant increase compared to 2 cases in 2019, before the SPAC boom began in earnest, and 5 cases last year.

SPACs whose stock prices have fallen are mainly being sued, including "Pershing Square Tontine Holdings," a SPAC founded by hedge fund industry mogul Bill Ackman, which recently faced a lawsuit over legal legitimacy issues.

Robert Jackson, a former commissioner of the U.S. Securities and Exchange Commission (SEC) and a professor at New York University, along with John Morley, a professor at Yale University, filed a lawsuit last week against Ackman’s Pershing Square Tontine and two other SPACs, "Go Acquisition" and "Emerge Technology Acquisition."

The plaintiffs claim that these SPACs violated the Investment Company Act enacted in 1940.

They argue that the Investment Company Act imposes stricter restrictions on compensation than SEC regulations, and that insiders such as SPAC founders can earn millions of dollars even if the stock price plummets. They explained that the lawsuit was filed to enhance transparency and protect investors.

A SPAC is a nominal company (paper company) established for the purpose of acquiring businesses. Generally, it acquires promising unlisted companies to generate profits, and the acquired companies benefit from a simpler listing process through the SPAC compared to traditional initial public offerings (IPOs).

Since last year, SPAC merger listings have gained popularity, and the funds raised through them have exceeded $200 billion (approximately 233.26 trillion KRW), according to the WSJ.

This content was produced with the assistance of AI translation services.