The big news in SPAC world has been the attempts of two law professors (Robert Jackson and John Morley) to define them as investment companies. They argue that SPACs meet the definition of an "investment company" because their primary business is to invest in securities". More than 49 law firms have signed on to a memo arguing:
Consistent with longstanding interpretations of the 1940 Act, and its plain statutory text, any company that temporarily holds short-term treasuries and qualifying money market funds while engaging in its primary business of seeking a business combination with one or more operating companies is not an investment company under the 1940 Act.
The issue is whether a SPAC is an investment company before it becomes an operating company. The same problem can arise in reverse - an operating company can become an investment company.
One famous example of the transformation of an operating company into an investment company is SEC v. Fifth Avenue Coach Lines, Inc., 435 F.2d 510 (2d Cir. 1970). Fifth Avenue Coach Lines was once one of the largest transit systems in the United States. Then, the City of New York acquired all of Fifth Avenue's operating assets by condemnation. The company used the net condemnation proceeds to acquire interests in other companies but failed to register under the Investment Company Act. The SEC sued and obtained both a permanent injunction and the appointment of a receiver.
One of the defendants was the late New York attorney Roy M. Cohn. His name may not be familiar to many today, but he once played a very prominent and controversial role in American public life. In 1951, Mr. Cohn was a prosecutor in the famous espionage trial of Julius and Ethel Rosenberg. His direct examination of Ethel's brother, David Greenglass, proved to be highly damaging to the couple, who were ultimately convicted and executed. Two years later, Senator Joseph McCarthy appointed Mr. Cohn to the Senate investigations subcommittee where he achieved even greater notoriety. Many years later, the State of New York disbarred Mr. Cohn and he died shortly thereafter.
Why "We Didn't Start the Fire"? That was the title of Billy Joel's hit song listing in rapid fire more than 100 events and persons (including Roy Cohn) during the period between 1949 and 1989. How many can you recognize?