In a new lawsuit that closely mirrors the features of many recent SPAC-related securities lawsuits, and that indeed almost entirely replicates the most recent suits, a plaintiff shareholder has initiated a securities class action against Canadian-based lithium battery recycler, Li-Cycle Holdings Corp. Li-Cycle completed a merger with a publicly traded SPAC in August 2021 and was the subject of a short-seller report in March 2022. The lawsuit against Li-Cycle is the latest in the development of what is becoming an increasingly significant securities litigation phenomenon this year. A copy of the April 19, 2022 lawsuit against Li-Cycle can be found here.



Peridot Acquisition Corp. is a special purpose acquisition company (SPAC). Peridot completed an IPO on September 28, 2020. On February 16, 2021, Peridot announced its intention to complete a business combination with Li-Cycle, a Canadian-based company that is in the business of recycling lithium-ion batteries in Canada and the U.S. The two companies completed the business combination on August 11, 2021. Prior and following the business combination, Li-Cycle (and its predecessor in interest, Peridot) made a number of public statements, including in SEC filings, about the company’s finances, revenue recognition practices, the sources of its revenue, and the adequacy of the company’s cash resources and financing to complete the company’s expansion plans.


In March 24, 2022, short seller Blue Orca Capital released a report highly critical of Li-Cycle. Among other things, the report questioned the company’s accounting and revenue recognition practices, particularly the company’s “mark-to-model” accounting framework; the involvement of the company and its senior management in related party transactions; and the adequacy of the company’s cash and financial resources to complete its expansion plans.


According to the subsequently filed securities class action complaint, the company’s share price fell 5.6% on the news.


The Lawsuit

On April 19. 2022, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against Li-Cycle, and against the two individuals who had served as the operating company’s CEO and CFO both before and after the merger with the SPAC. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between February 16, 2021 (the date the proposed merger was first announced) and March 23, 2022 (the date before the publication of the short seller report).


The complaint alleges that the during the class period, the defendants made false and/or misleading statements and/or failed to disclose that: “(1) Li-Cycle’s largest customer, Traxys, is not actually a customer, but merely a broker providing working capital financial to the Company while Traxys tires to sell Li-Cycle’s product to end customers; (2) the company engaged in highly questionable related party transactions; (3) the Company’s mark-to-model accounting is vulnerable to abuse and gave a false impression of growth; (4) a significant portion of the Company’s reported revenues were derived from simply marking up receivables on products that had not been sold; (5) the Company’s gross margins have likely been negative since inception; (6) the Company will require and additional $1 billion of funding to support its planned growth (which is a figure greater than the Company raised via the merger); and (7) as a result, Defendants’ public statements were materially false and/or misleading 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.



As I noted at the outset, this complaint mirrors many of the features that have become commonplace in the recent SPAC-related lawsuits. Indeed, this lawsuit almost completely replicates the features of the recently filed SPAC-related lawsuit filed earlier this week against electric aviation company Lilium (which I described in a prior post, here).


Like the Lilium lawsuit, this lawsuit involves a SPAC from the IPO class of 2020; it involves in a merger target company in the electric vehicle industry (considered broadly); it involves a 2021 merger; and it involves the publication of a critical short seller report in early 2022. The details and the timetable and many of the other details are almost identical. Indeed, the two lawsuits were both launched by the same law firm, The Rosen Law Firm. (There are other features common to the two lawsuits; for example, both involve defendant companies based outside the U.S.)


By my count, this lawsuit is the 44th SPAC-related securities lawsuit filed since January 1, 2021, and the 13th to be filed so far in 2022. The surge of SPAC-related securities lawsuit filings in 2022 is an increasingly important part of the level of securities class action litigation so far this year; by my estimation, the SPAC-related suits represent more than 21% of the securities class action lawsuit filings this year.


The complaint’s heavy reliance on a critical short seller report is an attribute of this complaint that has been prevalent among the recently filed SPAC-related securities suits. By my estimation, 19 of the 44 SPAC-related lawsuits filed since January 1, 2021 (43%) were filed following stock price declines after the publication of short seller reports critical of the defendant company.


If the electric vehicle is understood sufficiently broadly to encompass a company that is in the business of recycling electric vehicle batteries, then this lawsuit also involves a company in the electric vehicle industry, another feature that this lawsuit has in common with many of the recently filed SPAC-related securities suits. By my estimation, 17 of the 44 SPAC-related securities suits filed since January 1, 2022 (38.6%) have involved defendant companies in the electric vehicle industry; six of the 13 SPAC-related securities suits filed so far in 2022 (46%) have involved companies in the electric vehicle industry.


But while this lawsuit shares a number of key features in common with many of the previously filed SPAC-related securities suits, there are also key difference. For starters, unlike many of the previously filed SPAC-related lawsuit complaints, this complaint does not name as defendants any of the individual directors and officers of the pre-merger SPAC. The only two individuals named as defendants in this complaint are individuals who served as executives of the operating company, both before and after the merger. The absence of SPAC executive defendants is by contrast to most of the previously filed SPAC-related lawsuits; by my estimation, 28 of the 44 SPAC-related securities suits filed since January 1, 2021 (63.6%) have included former executives of the SPAC as named defendants.


One other noteworthy feature of this complaint that arguably differs from many of the other SPAC-related lawsuits involving allegations derived from critical short seller reports is that the suit involves a relatively modest share price decline following the publication of the report. In this case, the plaintiffs allege only that the share price declined 5.6%, which is a much smaller decline that is alleged in many of the other SPAC-related suits involving allegations based on short sellers’ reports.


But while there are certain specific features of this lawsuit that are somewhat different than many of the other SPAC-related suits, the basic outline of the lawsuit is a veritable replica of many of the most recent lawsuits, particularly the involvement of: a SPAC from the IPO class of 2020; a 2021 merger with a company in the electric vehicle industry; and an early 2022 short seller report. The plaintiffs’ bar (or at least the plaintiffs’ law firm that filed this suit and several of the other recent lawsuits) seems to have settled on a formula.


As I have noted before, eventually the plaintiffs’ bar will move on from the SPACs from the 2020 IPO class. As the SPACs from the 2021 IPO class (a club that has over 600 members) complete their intended mergers, increasing numbers of these SPAC-related suits will be filed involving these SPAC companies and transactions. If the SPAC-related securities suits filings already are an important 2022 securities litigation phenomenon, they are likely to become even more so as the year progresses and likely on into next year.