According to a new report about SPACs and SPAC-related securities litigation, even though the market for SPAC IPOs may have cooled in recent months, SPAC-related litigation has “yet to heat up.” Indeed, according to the report, litigation involving the 977 SPACs that completed IPOs during the period January 2019 and April 2022 “may continue to grow over the next few years.” The report, which is entitled “SPAC Federal Securities Litigation Analysis” and was written by David P. Abel, Managing Attorney, U.S. Market Advisors Law Group PLLC, can be found here.


The report provides a detailed overview of SPAC IPO activity and federal court-related securities class action  litigation between January 2019 and April 2022. Of the 977 SPAC IPOs that were completed during that period, 613 were completed during the peak year of 2021. As a result of shifts in the financial markets and the SEC’s introduction of proposed SPAC regulations, SPAC IPO activity have experienced a “dramatic decline” in the number of SPAC IPOs this year compared to 2021.


However, even before the recent drop off in SPAC IPO activity, securities class action lawsuit relating to SPACs and the post-merger companies were already accumulating. Moreover, “it is likely that litigation will continue against SPACs that went public during [between January 2019 and April 2022] as more information on the offering process and business operations comes to light.”


As for the SPAC-related securities litigation so far, there were, according to the report, at total of 61 federal court securities class action lawsuits filed during the period January 2019 through April 2022, of which 33 were filed in 2021 and 15 were filed YTD in 2022. The report does not attempt to tally or analyze SPAC-related corporate or securities litigation filed in state court during the period. [N.B., my tally of SPAC-related federal court securities litigation differs slightly from that in the report but my tally and the report’s figures are directionally consistent.] Of the 61 total SPAC-related federal court securities class actions filed during that period, 53 – more than 85% — remain active; eight have been dismissed and only one has settled. (The one case that has settled is Akazoo, as discussed here.)


After this overview, the report then takes a look at possible resolution outcomes for the existing litigation and possible continuing litigation risk going forward. First, the report notes that the outcomes of the existing litigation is not likely to be known until 2024 or later. Second, the number of lawsuits filed against SPACs could temporarily increase even if most SPAC IPOs remain on pause; factors such as declining economic conditions and continued regulatory scrutiny could be catalysts in bringing undisclosed securities violations to light. Third, the spike in the number of SPAC-related securities lawsuits in 2021 was related to the increase in the number of SPACs in 2020, just as the numbers of SPAC-related suits in 2022 so far seem related to the increase in SPAC IPOs in 2021 – an effect that seems likely to carry through at least this year.


Looking at the market capitalization of the defendants in the 61 federal court SPAC-related securities lawsuits that have been filed so far, it appears that most (45 out of the 61, or more than two-thirds) had market capitalizations of $2 billion of less, while 7 of 61 had market capitalizations between $2 billion and $10 billion. Only 3 had market capitalizations of over $10 billion. The median market capitalization was $535 million.


Because so many of the defendants in these actions were or are small cap stocks, the market capitalization losses and thus the class wide damages are also relatively limited. As the report puts it, “Class-wide damages are not expected to exceed $200 million for many of the actions in this study.” Reviewing the 61 lawsuits, and looking at the 54 cases for which market capitalization losses were calculated, 23 of the cases involve market capitalization losses under $200 million, 20 involve market capitalization losses between $200 million and $1 billion, and 11 involve market capitalization losses of over $1 billion. The median market capitalization loss was $228 million.


As far as the likely range of settlements for these cases (or at least for the ones that are not dismissed), the relatively small size of most of the primary corporate defendants, and subsequent amount of market capitalization losses, suggest that “there will be few mega-settlements.”