In the latest example of a company that recently merged into a publicly traded SPAC getting hit with a post de-SPAC transaction securities suit, electric vehicle technology company XL Fleet Corp. has sustained a securities class action lawsuit that names as defendants both directors and officers of the post-merger operating company and a former officer of the SPAC. As discussed below, the new lawsuit shares several features in common with many of the recent SPAC-related lawsuit filings. A copy of the March 8, 2021 lawsuit can be found here.



XL Fleet, Corp. manufactures motor vehicle hybrid electric drive systems. Pivotal Investment Corporation II was a Special Purpose Acquisition Corporation (SPAC). Pivotal completed an IPO on July 11, 2019. XL Fleet was formed by a December 22, 2020 merger of Pivotal and XL Hybrids, Inc.


On March 3, 2021, short seller Muddy Waters published a report about XL Fleet entitled “XL Fleet Corp. (NYSE: XL): More SPAC Trash” (here). The report makes several assertions against XL Fleet; among other things, the report states that the company is “duping investors into throwing money at this company through a collection of exaggerations, half-truths, and mistruths.”


The report alleges that the company’s salespeople were “pressured to inflate their sales pipelines materially in order to mislead XL’s board and investors” and that “customer reorder rates are in reality quite low” due to “poor performance and regulatory issues.” Citing interviews with former employees, the report alleged that “at least 18 of 33 customers XL featured were inactive.” Muddy Waters also claimed that XL has “weak technology” and that XL’s announcement of future class 7-8 uplifts seem highly promotional” because the task is “too technologically complex for XL engineers to deliver on the promised timeline.” According to the subsequently filed securities class action complaint, the company’s share priced declined 13% on the trading day following the report’s publication and dropped a further 19.4% in the two following trading days.


The Lawsuit

On March 8, 2021, a plaintiff shareholder filed a securities class action lawsuit against XL Fleet Corp. and certain of its directors and officers in the Southern District of New York. The complaint names as individual defendants Thomas J. Hynes III, XL Fleet’s President, and the founder of XL Hybrids; Dimitri Kazarinoff, XL Fleet’s CEO, who had been CEO of XL Hybrids prior to the merger; and Jonathan J. Ledecky, Chairman and CEO of Pivotal.


The complaint purports to be filed on behalf of a class of investors who purchased XL Fleet securities between October 2, 2020 (the date Pivotal filed its registration statement on Form S-4 seeking shareholder approval of the merger) and March 2, 2021.


The complaint extensively quotes from the financial information of XL Hybrids that appeared in Pivotal’s Form S-4 filing. The complaint also quotes from XL’s pre-merger press releases. The complaint alleges that the various statements the complaint quotes were false and misleading and that defendants failed to disclose to investors: “(1) that XL Fleet’s salespeople were pressured to inflate their sales pipelines to boost the Company’s reported sales and backlog; (2) that at least 18 of the 33 customers that XL featured were inactive and had not placed an order since 2019; (3) that XL’s technology had been materially overstated and offered only 5% to 10% of fleet savings; (4) that XL lacks the supply chain and engineers to roll out new products on the announced timelines; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations and prospects were materially misleading.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the plaintiff class.



By my count, this lawsuit is the sixth SPAC-related securities class action lawsuit to be filed so far this year. Please note that my 2021 SPAC-related lawsuit count my differ from other publicly available tallies; for example, the Stanford Law School Securities Class Action Clearinghouse’s tally (here) differs from mine, primarily because the Stanford site has included in its tally certain cases that were filed as individual actions and not as class actions.


This new lawsuit has several features in common with SPAC-related lawsuits filed so far this year and last year. For one thing, the new lawsuit involves an electric vehicle technology company. Many of the prior SPAC-related securities suit filings have also involved electric vehicle technology companies, such as, for example, Velodyne Lidar (about which refer here), QuantumScape (here) and Nikola Corporation (here).


Second, as has been the case with several prior SPAC-related lawsuits, the complaint filing followed shortly after the publication of a negative short-seller report – as, for example, was the case with the lawsuit filed against Clover Health Investments (about which refer here) and QuantumScape.


There could be further trouble ahead for post deSPAC companies owing to short seller interest. According to a March 14, 2021 Wall Street Journal article entitled in the online version “Short Sellers Boost Bets Against SPACs” (here), “investors who bet against stocks are targeting special purpose acquisition companies.” The article quotes Carson Block of Muddy Waters as saying that SPACs make up a universe of companies he views as “abysmal” and attractive targets for short interest.


Post de-SPAC merger companies also make attractive short interest targets because, the Journal article states, “they have larger market capitalizations, making their shares easier to borrow, and because early investors in the SPACs are eager to sell shares to lock in profits.” The article also quotes another short seller as saying “We saw these stocks go up a lot and now that people are de-risking, these highflying SPACs are coming down to earth.”


Another risk with the current crop of SPAC IPOs is the challenge associated with identifying an appropriate merger target. SPACs seeking a merger partner have a lot of competition these days. According to SPACInsider (here), there currently are over 400 post-IPO SPACs seeking a merger partner. Not only that, but there are also a further 209 SPACS that have filed for an IPO, meaning that soon there are going to be even more SPACs looking for merger partners.


Beyond the features I noted above that this new lawsuit has in common with prior SPAC-related suits, there are a couple of other aspects of this lawsuit similar prior suits. Specifically, the individuals named as defendants in this suit include a former officer of the per-merger SPAC company. Many of the prior SPAC-related lawsuits have also included as defendants former officers of the SPAC itself.


In addition, as is the case in several other SPAC-related lawsuits, the allegations in the complaint include allegations that the pre-merger documents included statements that misled investors in connection with the merger vote. Interestingly, this complaint not only alleges that the defendants made misleading statements in the Pivotal’s pre-merger SEC filings, but also that the defendants made misrepresentations in XL’s pre-merger press releases.


The timing of these alleged wrongful acts raise interesting D&O insurance-related questions about how pre- and post-merger insurance programs would respond to the claims, and also have important implications for the way the insurance of a de-SPAC target company’s insurance should be structured.


In any event, given the sheer volume of SPAC IPO activity in 2020 and 2021, it seems likely that there will be many more SPAC-related lawsuits to come. According to SPACInsider (here), with the addition of the SPAC IPOs that priced this past Friday, there officially have been more SPAC IPOs in 2021 (252, as of 3/12/2021) than there were in all of 2020 (248). And there are more than 200 SPACs in the IPO pipeline.