In my previous blog post, I noted that plaintiffs’ attorneys’ have been and are continuing to file SPAC-related securities class action suits, and I also noted that the latest filings are targeting SPAC and SPAC merger entities that completed their IPOs in the early stages of the SPAC IPO frenzy in late 2020 and early 2021. As if to underscore this point, yesterday a plaintiff shareholder filed a securities class action lawsuit against a post-SPAC-merger smart home products technology company, based on alleged misrepresentations in the company’s warranty accruals. The new lawsuit represents the latest example of the SPAC-related securities litigation trend. A copy of the complaint in the new lawsuit can be found here.
CF Finance Acquisition Corp. II is a special purpose acquisition company (SPAC). CF Finance II completed its IPO on September 1, 2020. On November 30, 2020, CF Finance II announced that it had entered into a definitive merger agreement with View, Inc., a California-based smart building products technology company. The companies completed the merger on March 8, 2021, with View becoming the surviving entity. The registration statement submitted in connection with the merger contained numerous statements about View’s warranty and warranty accruals policies, practices, and accounting methodology.
On August 16, 2021, View announced that the Audit Committee of the Company’s Board of Directors had “recently begun an independent investigation concerning the adequacy of the Company’s previously disclosed warranty accrual.” The investigation, the company’s statement said, is “ongoing,” and the Audit Committee “continues to work diligently with independent counsel and advisors to complete the investigation as soon as possible.” The statement added that the company cannot predict “the duration of the investigation, eventual scope, its outcome, or its impact on the Company’s financial results.” The statement also said that the company had as a result not completed its financial statements or its assessment of its disclosure controls and internal controls over financial reporting for the three and six months ending June 30, 2021.
According to the subsequently filed securities lawsuit complaint, the company’s share price fell over 24% on this news.
On August 18, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California. The plaintiff’s complaint names as defendants View and its CEO and CFO. The complaint purports to be filed on behalf of a class of persons who purchased the shares of View or of the predecessor SPAC entity between November 30, 2020 (the date the merger was announced) and August 16, 2021 (the date of the warranty accrual investigation announcement).
The complaint alleges that the defendants made misleading statements or failed to disclose: “(1) that View had not properly accrued warranty costs related to its product; (2) that there was a material weakness in View’s internal controls over accounting and financial reporting relating to warranty accrual; (3) that, as a result, the Company’s financial results for prior periods were misstated; and (4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover damages on behalf of the class.
By my count, this new lawsuit is the 20th SPAC-related securities class action lawsuit to be filed so far in 2021. Within this group of lawsuits, this latest lawsuit is somewhat unusual in that it names as defendants only directors and officers of the de-SPAC entity; no former directors or officers of the former SPAC are named as defendants.
The new lawsuit against View is akin to a number of the other SPAC-related securities suits filed this year in that the lawsuit after the post-merger company stumbled shortly after the merger was completed. In this case, View announced the merger accrual investigation in connection with its completion of the financial statements for the first full financial reporting period following the merger’s completion.
It is also worth noting that the new lawsuit against View pertains to a SPAC-related merger involving a SPAC entity that completed its IPO in September 2020, just as the SPAC frenzy that engulfed the financial markets in late 2020 and early 2021 was taking off. In other words, the SPAC-related litigation phenomenon is just now coming to the point in time where the SPACs that completed their IPOs during the frenzy are getting drawn into the litigation fray. With hundreds of SPACs still out there looking for merger targets, the circumstantial predicate for the SPAC-related litigation yet to come is still coming together. The upshot is that while SPAC-related litigation has been an important securities litigation phenomenon so far in 2021, it will become even more important as 2021 progresses and as we head into 2022.
From my perspective, it seems likely that SPAC-related litigation will reliably be providing good blog fodder for some time to come.