Consistent with what is already a well-established current securities class action litigation filing trend, plaintiff shareholders last week filed two more SPAC-related securities suits. Although the two new suits are somewhat different from each other, they share the common feature that they both involve corporate defendants that recently became publicly traded through merger with a SPAC. The SPAC-related lawsuits, including the two most recently filed examples, represent a significant securities litigation phenomenon this year. The two new lawsuits are discussed below.


The Bakkt Holdings Complaint

VPC Impact Acquisition Holdings (VIH) was a special purpose acquisition company (SPAC). VIH completed an IPO on September 22, 2020. On January 11, 2021, VIH announced its plan to complete a business combination with Bakkt Holdings LLC (Legacy Bakkt), a digital asset trading platform. VIH and Legacy Bakkt completed the business combination on October 15, 2021 and the combined company changed its name to Bakkt Holdings, Inc.


During the period after VIH announced the planned business combination and the date the combination was completed, VIH made two announcements regarding its accounting for its securities, and then shortly after the business combination was completed, the combined company made third announcement concerning accounting for the company’s securities.


First, on May 17, 2021, VIH notified the SEC of the company’s inability to timely file its quarterly report; as a result of an April 2021 SEC staff statement about accounting for SPAC warrants, the company “reevaluated” its accounting for the company’s warrants. The company’s share price decline about 1.2% on this news.


Second, on October 13, 2021 (just two days before the business combination was completed) VIH disclosed in an SEC filing that it had failed to properly account for the classification of its Class A ordinary shares and had adjusted the initial carrying value of the Class A ordinary shares subject to possible redemption. These changes resulted in balance sheet adjustments; among other things, the companies paid-in capital was reduced, its accumulated deficit increased, and shareholders equity dropped from a positive $5 million to a negative $29 million. The company share price declined nearly 5% on this news.


Finally, on November 22, 2021, approximately one month after the business combination was completed, the company disclosed in another SEC filing that management had re-evaluated the accounting classification of the Class A ordinary shares; had identified errors in the historical financial statements of VIH; and had concluded that the company should restate the VIH financial statements for the 2020 reporting year and for the first, second, and third quarters of 2021. According to the subsequently filed complaint, the company’s share price declined more than 13% on the news.


On April 21, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against Bakkt. A copy of the complaint can be found here. The complaint also named as defendants five individual former directors and officers of VIH. The complaint purports to be filed on behalf of two classes of investors: investors who purchased securities of VIH or, post-combination, of Bakkt, between March 31, 2021 (the date VIH filed its Form S-4 with the SEC in connection with the planned business combination) and November 19, 2021 (the trading date before the date Bakkt announced the need to restate the prior VIH financial statements); and investors who purchased common stock traceable to the Offering Documents issued in connection with the business combination.


The complaint alleges that in the Offering Documents and in statements during the class period, the defendants made false or misleading statements and/or failed to disclose that: (i) the Company had defective financial controls; (ii) as a result, there were errors in the Company’s financial statements related to the misclassification of certain shares issued prior to the Business Combination; (iii) accordingly, the Company would need to restate certain of its financial statements; (iv) the Company downplayed the true scope and severity of these issues; (v) the Company overstated its remediation of its defective financial controls; and (vi) as a result, the Offering Documents and Defendants’ public statements throughout the Class Period were materially false and/or misleading and failed to state information required to be stated therein.”


The plaintiff alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the plaintiff also alleges that the misrepresentations in the offering documents violated Sections 11 and 15 of the Securities Act of 1933.


The IronNet Complaint

LGL Systems Acquisition Corp (LGL) was a special purpose acquisition company (SPAC). LGL completed an IPO in November 2019. IronNet was a private company providing cyber security services. On August 27, 2021, IronNet became a publicly traded company as a result of a merger with LGL.


On August 10, 2021, in anticipation of the upcoming shareholder vote on the proposed merger, IronNet updated its financial forecasts “due to shifts in the anticipated closing of several new customer contracts.” On September 14, 2021, IronNet announced its Second Quarter 2022 financial results; the subsequently filed complaint alleged that “attempting to counteract otherwise disappointing results, the press release assured investors that the Company would still meet its financial guidance.” The reassurance “had the intended effect” and the company’s share price “skyrocketed 38%.


Then on December 15, 2021, when the company released its financial results for the third quarter of 2021, the company “slashed” its FY 2022 guidance, which had been reaffirmed just months earlier. In a conference call later that day, the company announced the departure of two executives. The company’s CEO also said that the company did not have any confidence when the previously anticipated revenues would actually come in. On this news, the company’s share price fell 31%.


On April 22, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of Virginia against IronNet and three of its officers. A copy of the complaint can be found here. The complaint purports to be filed on behalf of a class of persons who purchased securities of IronNet between September 15, 2021 (the date after IronNet reconfirmed its prior revenue guidance) and December 15, 2021 (the date on which the company “slashed” its guidance).


The complaint alleges that during the class period, the defendants failed to disclose that: “(i) the Company had materially overstated its business and financial prospects; (ii) the Company was unable to predict the timing of significant customer opportunities which constituted a substantial portion of its publicly-issued FUI 2022 financial guidance; (iii) the Company had not established effective disclosure controls and procedures to reasonably ensure its public disclosures were timely, accurate, complete, and not otherwise misleading; and (iv) as a result the Company’s public statements were materially false, misleading, and/or lacked any reasonable basis in fact 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 class.



By my count, plaintiffs’ lawyers have now filed a total of 46 SPAC-related securities class action lawsuits since January 1, 2021, of which 15 have been filed so far in 2022. The pace of the SPAC-related lawsuits filings has perceptibly picked up on recent weeks; there have been seven SPAC-related suits filed in April alone.


As I noted at the outset of this post, the SPAC-related filings have become a significant securities litigation phenomenon this year. By my count, there have been a total of 63 securities class action lawsuits filed so far this year, meaning that the fifteen SPAC-related lawsuits filed in 2022 represent about 23.8% of all YTD securities suit filings.


The Bakkt complaint has several unusual features. First of all, all of the alleged misrepresentations on which the complaint is based all were either made by the predecessor SPAC or were made in the SPAC’s financial statements. By contrast, most SPAC-related lawsuits (such as, for example, the new lawsuit filed against IronNet) are based on alleged misrepresentations by or about the target company or the post-merger operating company. The Bakkt complaint is also unusual in that all of the individual defendants named are former officers or directors of the SPAC; no officers or directors of the target company or the post-merger operating company are named as defendants. In the IronNet lawsuit, by contrast, the only defendants are former officers of the target company and/or post-merger operating company; no former officers of the SPAC are named as defendants.


It is interesting to note that among the accounting issues that the plaintiff cites in the Bakkt complaint are the issues surrounding the company’s accounting for its warrants. Readers will recall that something of a SPAC-world shock wave was set off when, On April 12, 2021, John Coates, Acting SEC Director of the Division of Corporation Finance, and Paul Munter, the Acting SEC Chief Accountant, issued a  statement addressing accounting and reporting considerations regarding warrants issued by SPACs. The SEC officials in effect said that some SPACs may not have properly accounted for warrants sold to investors. In the past, many SPACs classified warrants as equity on their balance sheets. However, in the statement, the SEC officials said that in certain circumstances the units would have to be classified as liabilities, rather than as equity.


After the SEC released this statement, many SPACs and companies that had previously merged with SPACs scrambled to address their accounting treatment for their warrants. In at least one case, involving Virgin Galactic, which had previously merged with a SPAC, the company’s restatement of its financial statements to reflect this revised understanding of accounting for warrants resulted in a securities class action lawsuit (as discussed here). The new complaint against Bakkt references the warrant accounting issues, but these questions do not seem to be a major part of the plaintiff’s complaint. The larger issues, and the one that led to the restatement of the pre-merger SPAC’s prior financial statements, seem to involve the way the company accounted for its Class A shares. Just the same, however, the Bakkt complaint does refer to the warrant accounting issue, and to that extent it is another example of the warrant accounting issue translating into a securities lawsuit.


These two latest lawsuits do differ from many of the previously filed SPAC-related lawsuits, in that they do not involve a share price decline following a short-seller’s publication of a critical report and they do not involve companies in the electric vehicle industry. However, like so many lawsuits filed since January 1, 2021, the new lawsuits do involve companies that recently merged with a publicly traded SPAC.


It is noteworthy that the two company’s SPAC merger partners were from, in the Bakkt lawsuit, a SPAC from the IPO class of 2020, and in the IronNet lawsuit, a SPAC from the IPO class of 2019. There still have been relatively few SPAC-related lawsuits involving SPACs from the IPO class of 2021 (when over 600 SPACs completed IPOs). Most of these 2021 SPACs are still in the search phase. However, over the coming months, many of these SPACs will complete mergers; as more of these SPACs reach the phase in the SPAC lifecycle where the SPAC related suits have tended to accumulate, lawsuits will be filed involving these 2021 SPACs. The likelihood is that there is a great deal more of SPAC-related litigation to come.