It was no sooner we mentioned how spectacularly the blowup of Pershing Square’s Tontine Holdings SPAC was for some retail investors, than the entity is being sued.
The lawsuit seeks to prove that Pershing Square’s SPAC was an investment company and not a SPAC, according to Bloomberg Tuesday morning. As we noted days ago, this is the exact reason the SPAC got pushback from the SEC when it announced its intention to make an investment in Universal Music, leaving cash left over to acquire, invest and/or merge with other companies.
The suit was filed by shareholder George Assad, according to the report. If it is found to be meritorious, it could have implications for how SPACs are viewed in the future since Assad is trying to make the case that PSTH was an investment company.
In response to the suit, Bill Ackman told Bloomberg on Tuesday: “PSTH has never held investment securities that would require it to be registered under the Act, and does not intend to do so in the future. We believe this litigation is totally without merit.”
Bernstein Litowitz Berger & Grossmann is lead counsel for the suit.
Recall, earlier this week we wrote that Ackman wound up torching retail investors when Pershing Square Tontine Holdings failed to find a merger partner after months of bluster from Ackman and blind faith from investors.
The failure of PSTH to get off the ground resulted in large losses for retail investors, like one 35-year-old unmarried Chicago psychiatrist who lost nearly $1 million “investing” in call options on the pre-merger entity, a new profile by Institutional Investor pointed out several days ago.
PSTH had been touted by Ackman to be an “investor friendly” SPAC. Ackman even “tweeted a rap video about SPACs minting money” in February 2021. Ackman even joked about “marrying a unicorn” when talking about his SPAC’s launch last July.
“That video literally single-handedly caused the stock to rise 10 percent,” the investor told II. “It was like, okay, this is coming very soon. If you don’t get in now, you’re going to miss it.”
“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 investor said. “Whatever money I had, I pretty much was putting it all into buying more of it,” he said of his purchases of June 18, 2021 $25 strike call options. The stock traded at $23 at the time, leaving the options to be a total loss.
But reality hit on June 4 when PSTH announced a deal to take a 10% stake in Universal Music Group. It was a small slice of an investment that left money over for other deals. Then, “hell came” when the SEC told Ackman that the deal didn’t meet NYSE’s requirements for a SPAC, all but killing the deal.
In fact, II talked to 16 other people who invested in PSTH and though it was a “safe, calculated bet”. “Nine of the 17 men II contacted were either immigrants or first-generation Americans,” the report noted.
One 31 year old German college student put about $294,000 in savings into the SPAC. He had lost about $100,000 on the investment. “I looked up to Ackman,” he said, noting that he was impressed by Ackman’s SPAC doing away with free sponsor shares and encouraging holding shares post-merger through special warrants. “It was clear to me that this was a new kind of vehicle. To me, the warrants were the unique selling point of PSTH,” he said.
Another investor who lost $600,000 on PSTH options told II: “The gambler’s fallacy is always the high end. You think you’re invincible until you’re not, and that’s generally what happened to me.”
The biggest loss came from a 39 year old software engineer, who saved $1.6 million over 20 years. He set up an account at Fidelity last year and, behind the back of his parents whom he was helping support, put the entire $1.6 million into PSTH.
“Ackman just sounded very confident. I trusted the guy. I thought he knew what he was doing,” the engineer said.
It was then that he transferred his shares into in the money call options with a strike price of $22. The stock was trading at $30 at the time. His account hit $2 million at one point before his options expired worthless on July 16.
He said of the resulting depression he is suffering from: “I’m not mentally there. I’ve got to pick myself up or this is going to ruin my life even further.”