In the latest SPAC-related securities class action lawsuit to be filed, a plaintiff shareholder has filed a post-merger lawsuit against a commercial space launch company that merged with a SPAC in June 2021. As is the case with many of the SPAC-related securities lawsuits, the defendant company was sued after its share price declined following the publication of a short-seller report. A copy of the complaint filed against Astra Space, Inc. on February 9, 2022 can be found here.

 

Background

Holicity, Inc., a special purpose acquisition company (SPAC) completed its initial public offering on August 7, 2020. On February 2, 2021, Holicity announced its plan to complete a business combination with Astra Space. Astra is a commercial space launch company. The business combination was completed on June 30, 2021, with Astra as the surviving operating company.

 

On December 29. 2021, short-seller Kerrisdale Capital released a lengthy report that was highly critical of Astra. Among other things, the report challenged Astra’s claim that its technology allowed it to “launch anywhere”; and that its addressable market was as extensive as the company claimed. The report also said that Astra’s financial projections were built on “absurd market assumptions”; that its planned daily launch “cadence” exceeds the addressable market; and that without the planned launch cadence, the company’s business model “falls apart.” The report also questions the company’s technology, asserting that its planned vehicles were “undersized and not reusable.” The report also questioned various parts of the company’s business strategy and operational plan.

 

According to the subsequently filed securities class action lawsuit complaint, the company’s share price declined 14% on the news.

 

The Lawsuit

On February 9, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against Astra; against two of its directors and offices, who had been executives of Astra prior to the merger; and against a former officer of the SPAC. The complaint purports to be filed on behalf of a class of investors who purchased the company’s shares (or of the SPAC’s shares prior to the merger) between February 2, 2021 (the date the proposed merger was announced) and December 29, 2021, the date of the short-seller’s report.

 

The complaint cites numerous statements made by the SPAC prior to the merger, and by Astra after the merger and before the short-seller’s report, about the company’s technology, business strategy, and operating plan. The complaint alleges that these statements were materially false and/or misleading because they misrepresented and failed to disclose that: “(1) Astra cannot launch ‘anywhere’; (2) Astra significantly overstated its addressable market; (3) Astra overstated the effectiveness of its designs and reliability; (4) Astra significant overstated its plans for diversification and its broadband constellation plan; and (5) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.”

 

The complaint alleges that the defendants’ violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

 

Discussion

By my count, this lawsuit is the third SPAC-related lawsuit to be filed so far in 2022, and the 34^th to be filed since January 1, 2021. The complaint has a number of features in common with many of the other SPAC-related lawsuits that have been filed. Among other things, it includes as an individual defendant a former officer of the SPAC with which Astra merged. According to my analysis, just short of two-thirds of the SPAC-related securities class action lawsuits filed in 2021 included former directors or offices of the SPAC as defendants. All three of the SPAC-related securities suits to be filed so far in 2022 have named former directors or officers of the SPAC as defendants.

 

The complaint is also similar to many of the previously filed securities class action lawsuits in that the filing of the complaint follows a drop in the share price of the defendant company’s stock after the company was hit with a critical short seller report. Slightly less than half of the 2021 SPAC-related lawsuits involved companies that had been hit with short seller reports. So far in 2022, the lawsuit against Astra is the first SPAC-related securities lawsuit to be filed against a company hit with a short-seller report.

 

According to the recently published year-end report of Cornerstone Research (here), about 21% of all core securities class action lawsuit filings involved companies that had been the subject of a short seller report (refer to page 32). These data suggest that short-seller report-based lawsuits are even more prevalent among SPAC-related suits than is the case for the lawsuits in general. Interestingly, among the plaintiffs’ law firms the Cornerstone Research report identifies as responsible for a significant amount of the short-seller report-related lawsuits filed in 2021 is The Rosen Law Firm, which is the plaintiffs’ firm that filed this latest lawsuit against Astra.

 

The SPAC involved in this lawsuit was part of the SPAC IPO class of 2020. There still has been only one securities suit filed so far involving a SPAC from the SPAC IPO class of 2021, a consideration that is noteworthy when considering what might be ahead. Given that there were over 600 SPAC IPOs in 2021, it seems likely that there could be a certain amount of litigation ahead, especially as the SPACs from the IPO class of 2021 announce and complete their intended mergers. Chances are there are more lawsuits yet to come, perhaps many of them.