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Bill Ackman Sued, Returns $4 Billion to SPAC Investors

Pershing Square Tontine Holdings is returning its funds to investors.

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Billionaire investor Bill Ackman’s troubled SPAC was sued last week. The suit claims that his SPAC, also known as a blank-check company promised “staggering compensation” to its directors. The suit seeks to have the entity’s special status revoked. So now Bill Ackman is shuttering the business.

The SPAC is called Pershing Square Tontine Holdings (PSTH). The lawsuit was brought by former SEC commissioner Robert Jackson and Yale Law professor John Morley. The suit alleges that PSTH acted improperly as an investment company instead of an operating company.

“Investing in securities is all the company has ever done since its I.P.O.,” reads the complaint. “The Defendants have received securities that under any plausible estimate are worth hundreds of millions of dollars — an unreasonable payment for the work performed,” adds the plaintiffs.

According to the lawsuit, “By telling the world that PSTH is not an ‘Investment Company’ as that term is defined in the ICA, Defendants have structured PSTH so as to charge its public investors what amounts to hundreds of millions of dollars in compensation.”

PSTH was supposed to 10% of Universal Music Group UMG. But in mid-July its board of directors unanimously determined not to proceed with the Universal Music Group transaction, and to assign their share purchase agreement to Pershing Square Holdings, Ltd. (LN:PSH) (LN:PSHD) (NA:PSH) and affiliates (“PSH and affiliates” or “Pershing Square”). Pershing Square has also agreed to assume the Vivendi indemnity agreement and their UMG transaction costs.

Bill Ackman explained the move to shut down Pershing Square Tontine Holdings in a letter to Pershing Square Tontine Holdings shareholders he sent out at the end of last week.

“While we have been working diligently to identify and close a transaction, and we have begun discussions with potential merger candidates, our ability to complete a transaction in the required timeframe has been impaired by the lawsuit,” Ackman wrote in the letter.

Ackman went on to promise the shareholders that he would be returning to them their $4 billion in investments. Calling the lawsuit meritless, Ackman blamed the lawsuit for the decision to drop out of the Universal Music Group UMG deal. “Our ability to complete a transaction in the required time frame has been impaired by the lawsuit,” wrote Ackman.

Bill Ackman also warned that the lawsuit could prove harmful to the entire SPAC industry writing that it “may have a chilling effect on the ability of other SPACs to consummate merger transactions or to engage in IPOs.”

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