Corvex Management has agreed to pay $1 million to settle a Securities and Exchange Commission complaint related to the activities of three special purpose acquisition companies co-sponsored by the hedge fund.
The regulator accused the activist hedge fund firm of failing to make timely disclosure of conflicts of interest and failing to adopt and implement “reasonably designed” written policies and procedures regarding Corvex personnel’s ownership interests in the SPAC sponsors, as well as Corvex’s practice of investing client assets in private placement in public equity, or PIPE, transactions connected with the SPAC deals.
Corvex, headed by Keith Meister, reported $2.94 billion in regulatory capital as of the end of 2022, according to a regulatory filing.
In 2020 and 2021, amid the SPAC boom on Wall Street, Corvex co-launched three healthcare-related SPACs with Casdin Capital: CM Life Sciences, CM Life Sciences II, and CM Life Sciences III. Each of the two hedge fund firms held roughly equal stakes.
Casdin, headed by Eli Casdin, was not named in the complaint.
Each of the three SPACs closed on business combinations in 2021, and their stock prices have since dropped precipitously.
According to the SEC complaint, Corvex personnel were entitled to receive a portion of the SPAC sponsor compensation. As a result, the regulator asserted that Corvex personnel “had material conflicts of interest” that could affect the advisory relationship between Corvex and its hedge funds and “could cause Corvex to render advice that was not disinterested,” it added.
The regulator noted, for example, that because the sponsor compensation was contingent upon the completion of a merger deal by the SPACs, Corvex personnel had financial incentives to influence the hedge funds to make SPAC-related investments that would help ensure that the SPACs completed the deal.
“Corvex had the power to make investment decisions on behalf of private funds that Corvex advised,” the SEC stated. This included having the hedge funds purchase securities in PIPE transactions to help finance the SPAC deals.
The SEC noted that as part of three deals completed by its SPACs, Corvex caused its hedge funds to participate in PIPE transactions that totaled more than $122 million.
“Thus, Corvex personnel had conflicts of interest that, among other things, could affect both whether or not Corvex selected certain investments on behalf of its advisory clients, as well as the size and scope of any such investments,” the SEC stressed. “Nevertheless, Corvex failed to make timely disclosure of its SPAC-related conflicts of interest to the boards of directors of private funds it advised.”
The SEC also pointed out that Corvex first made certain SPAC-related disclosures to private fund directors on April 23, 2021, by providing them with Corvex’s Form ADV Part 2A brochure dated March 31, 2021.
However, the SEC said that by this time, one of the SPACs had been formed, consummated an initial public offering, and announced a business combination agreement, adding that the Corvex hedge funds had already subscribed to a related PIPE transaction. The SEC also noted that the second SPAC had already been formed, completed an IPO, and announced a merger deal while the hedge funds subscribed to a related PIPE, and that the third SPAC had already been formed and completed its IPO.
All three SPACs completed their mergers in 2021. Since then, their stocks have collapsed.
In July 2021, CM Life Sciences completed its merger with Sema4, which used machine learning and other artificial intelligence tools to analyze a database of more than 10 million patient genomic profiles and clinical records. It was spun out from Mount Sinai in 2017.
Last November the company announced that it would lay off a third of its employees, shut down its reproductive health testing and services division, and change its name to GeneDx Holdings. The stock closed Friday at just 29 cents per share, down nearly 98 percent from its closing price the day the SPAC merger was completed.
In September 2021, CM Life Sciences II completed its merger with SomaLogic, which specializes in AI-data driven proteomics technology. Its stock closed Friday at $3.06, down 70 percent from the merger day price.
And then, in December 2021, CM Life Sciences III completed its merger with EQRx, which described itself as a new type of pharmaceutical company committed to developing new medicines at radically lower prices. The stock is currently trading at $1.79, down more than 80 percent from its post-SPAC merger price.
