In the latest example of a SPAC-related securities class action lawsuit against a post-SPAC-merger company in the electric vehicle industry, a plaintiff shareholder has filed a securities suit against Electric Last Mile Solutions, Inc. an EV company that merged with a SPAC in June 2021. The lawsuit comes after the company announced the departure of its CEO and its Chairman and the need for the company to restate prior financial statements. A copy of the plaintiff’s February 3, 2022 complaint can be found here.



Forum Merger III Corp., a special purpose acquisition company (SPAC), completed its IPO on August 18, 2020. On December 10, 2020, Forum Merger III Corp. announced its plans to merge with Electric Last Mile, Inc.  The two companies completed their merger on June 25, 2021, with Electric Last Mile Solutions (ELMS, or the Company) as the surviving publicly traded company.


In a February 1, 2022 press release (here), the Company announced that its CEO and co-founder, James Taylor, and its Chairman and co-Founder, Jason Luo, had resigned from their positions at the Company. The press release stated that these departures followed an investigation conducted by a Special Committee of the Board of Directors, which had been formed in November 2021, following “an inquiry into certain sales of securities made by and to individuals associated with the company.” The press release further stated that “shortly before the Company’s December 10, 2020 announcement of a definitive agreement for a business combination with [the SPAC], certain Electric Last Mile, Inc. executives purchased equity in the Company at substantial discounts to market value without obtaining an independent valuation.”


The press release also stated that on the basis of the Special Committee investigation, “the Board concluded that the Company’s previously issued consolidated financial statements should be restated and, therefore, should not be relied upon.” The financial statements referenced in the press release included those as of December 31, 2020; the period from August 20, 2020 (inception) through December 31, 2020; and the six months ended June 30, 2021 and the nine months ended September 30, 2021.


According to the subsequently filed securities class action complaint, the company’s share price declined 51% on the news.


The Lawsuit

On February 3, 2022, a plaintiff shareholder filed a securities class action lawsuit complaint in the District of New Jersey against the company, as well as against certain other individual defendants. The individual defendants include John Taylor, the co-founder and former CEO of the operating company, and Jason Luo , the Chairman and co-founder of the operating company. The named individual defendants also include two former officers and directors of the SPAC, including one individual, David Boris, who also served as a director of the post-merger operating company. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between March 31, 2021, the date the Company filed its 2020 Annual Report with the SEC, and February 1, 2022 (the date before the company’s February 2, 2022 press release).


The complaint contains extensive quotes from the company’s financial statements between March 31, 2021 and the February 2, 2022 press release. The complaint alleges that during the class period, the defendants made false and/or misleading statements and/or failed to disclose that: “(1) ELMS’s previously issued financial statements were false and unreliable; (2) ELMS’s earlier reported financial statements would need restatement; (3) certain EMLS executives and/or directors purchased equity in the Company at substantial discounts to market value without obtaining an independent evaluation; (4) on November 25, 2021 (Thanksgiving), the Company’s board formed an independent Special Committee to conduct an inquiry into certain sales of equity securities made by and to individuals associated with the Company; and (5) as a result, Defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times.”


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 complaint seeks to recover damages on behalf of the plaintiff class.



By my count, this latest lawsuit against ELMS represents the second SPAC-related securities class action lawsuit to be filed so far in 2022, and the  33rd SPAC-related securities suit to be filed since January 1, 2021.


The new lawsuit against ELMS shares a number of features in common with many of the earlier filed securities lawsuits. For starters, as was the case with 20 out of the 31 (or slightly less than two-thirds) SPAC-related securities lawsuits filed in 2021, the complaint names as defendants former directors and officers of the SPAC. In addition, as was the case in nine out of the 31 (or slightly less than one-third) SPAC-related securities lawsuits filed in 2021, the operating company with which the SPAC merged is in the electric vehicle industry.


Perhaps more significantly for thinking about what this latest lawsuit might imply in terms of future SPAC-related litigation, this lawsuit relates to a SPAC that completed its IPO in the second half of 2020, when the SPAC frenzy that set in during late 2020 and early 2021 was just getting started. The SPAC-related litigation that has been filed up to this point has mostly involved SPACs that completed their IPOs prior to the frenzy period. As more time goes by and as the SPACs from the late 2020 and early 2021 period complete their mergers, and as the go forward operating companies begin their lives as public companies, we are likely to see at least in some instances additional SPAC litigation emerging. If the litigation filed is proportionate to the level of SPAC IPO activity in late 2020 and early 2021, the amount of SPAC-related litigation ahead could be substantial.