Comparing Unprofitable Companies to SPAC Investments Following AMG Capital Management, LLC v. Federal Trade Commission
BY: Matthew Rosen, RBFL Student Editor
In April of 2021, the Supreme Court laid down a ruling that severely diminished the Federal Trade Commission’s ability to obtain monetary relief in federal court. In AMG Capital Management, LLC v. Federal Trade Commission (AMG v. FTC) the court radically overhauled the dynamic within the court system. The ruling prevents the FTC from looking retrospectively at a company’s wrongdoings to obtain monetary relief for those who have been harmed. Justice Breyer held that the statute should only be applied towards injunctive relief.
This ruling is considered to be especially applicable to unprofitable companies and SPACs, who often find themselves more vulnerable to litigation. Using MoviePass as an example of an unprofitable company, MoviePass went to great lengths to keep their company afloat as it was slowly dying. The company began employing deceptive business practices, such as taking their service offline entirely in an effort to prevent the users from costing them any more money. Prior to the AMV v. FTC decision, the FTC would have been able, or at least try, to obtain monetary relief for those users who were harmed by these deceptive behaviors. Following the ruling, the FTC is only capable of seeking an injunction to prevent this type of behavior in the future. While MoviePass still ended up bankrupt as a company, they will suffer not suffer directly for their actions.
SPAC investments provide some different angles to the discussion of the FTC’s power compared to unprofitable companies. Often, companies may choose to go public through a SPAC prior to becoming profitable, leading to many of the same potential liabilities as any other unprofitable company. Additionally, SPACs create a lengthened negotiation period during the acquisition process. One common issue with SPACs is stockholders suing for misrepresentations and a failure to find the best target company. While stockholders maintain their own litigation rights, AMG v. FTC insulates the SPAC leaders from federal intervention for monetary damages. Furthermore, as a rapidly growing market, SPACs are staring down potential regulations from the SEC. While a concern for the SPAC market, these regulations could provide a level of protection for investors rather than the company itself.
As the market continues to evolve, it will be interesting to follow the behaviors of both unprofitable companies and SPACs. The unprofitable company business model appears to be more popular than ever before, with many of these companies carrying with them large amounts of debt. As for the relatively new SPAC boom, it remains unclear how these companies will perform long-term and if the SPAC strategy will continue to grow.
Sources:
Anna B. Naydonov, SCOTUS: FTC Has No Authority to Obtain Monetary Relief Under Section 13(b) of the FTC Act, Nat’l L. Rev. (May 14, 2021), https://www.natlawreview.com/article/scotus-ftc-has-no-authority-to-obtain-monetary-relief-under-section-13b-ftc-act [https://perma.cc/BU5J-Z9N5] (“For over four decades the Commission has relied on this Section to bring consumer protection and antitrust actions before federal courts seeking injunctions and monetary relief, such as restitution and disgorgement . . . .”).
Nick Statt, Why MoviePass Really Failed, The Verge (Sept. 19, 2019, 10:00 AM), https://www.theverge.com/2019/9/19/20872984/moviepass-shutdown-subscription-movies-
helios-matheson-ted-farnsworth-explainer [https://perma.cc/3JBJ-DTCK] (“As the CEO of Helios and Matheson, however, Farnsworth set his sights on Hollywood, and he decided to acquire the six-year-old-film-subscription service MoviePass in summer 2017.”).
Dan Seitz, MoviePass Temporarily Shuts Down For the Second Time in Weeks After Running Out of Money, Uproxx (July 28, 2018), https://uproxx.com/movies/moviepass-outage-money/ (providing an example of one of the times MoviePass shut down).
Max H. Bazeman & Paresh Patel, SPACs: What You Need to Know, Harv. Bus. Rev. (July 2021), https://hbr.org/2021/07/spacs-what-you-need-to-know (“A SPAC is a publicly traded corporation with a two-year life span formed with the sole purpose of effecting a merger . . . .”).