Although there have been literally dozens of SPAC-related securities class action lawsuits filed since January 1, 2021, in recent months the pace of filing of these lawsuits has noticeably slowed. After an extended period when many of these suits were filed each month, during the period since May 31, 2022 only three of these suits have been filed. However, this past week, a SPAC-related  securities lawsuits was filed against Core Scientific, a digital mining company that merged with a SPAC in January 2022. As discussed below, this latest filed lawsuit has several interesting features. A copy of the complaint filed against Core Scientific can be found here.



Core Scientific is a blockchain computing data center provider and digital asset mining company. It mines digital assets for its own account and provides hosting services for other miners.


Power & Digital Infrastructure Acquisition Corp. (XPDI) was a publicly traded SPAC that completed its IPO on February 9, 2021. On July 21, 2021, Core Scientific announced that it would become a publicly traded company through a business combination with XPDI. The business combination was completed on January 19, 2022.


On March 3, 2022, short-seller Culper Research published a report about Core Scientific. Among other things, the report said that the research firm believes that “Core has wildly oversold both its mining and hosting businesses, which it cobbled together in a series of questionable transactions before dumping onto the public markets via SPAC.” The report alleged that the company had overstated its profitability and that the company’s largest customer lacked the financial resources to deliver requisite services pursuant to its contract. According to the subsequently filed securities lawsuit complaint, the company’s share price declined nearly 10% on the news.


On October 27, 2022, before the market opened. Core Scientific disclosed that “given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern.” The company also announced that is was exploring alternatives to its capital structure. The company also disclosed that it held 24 bitcoins, compared to over 1,000 as of September 30, 2022. The complaint alleges that the company’s share price declined over 78% on this news.


The Lawsuit

On November 14, 2022, a plaintiff shareholder filed a securities class action lawsuit against Core Scientific and certain of its officers. From the face of the complaint, it appears that the individual defendants are all current or former officers of the operating company; it does not appear that officers of the former SPAC are named as defendants. The complaint purports to represent a class of investors who purchased securities of Core Scientific (or prior to the merger, of XPDI) between January 3, 2022 (the date XPDI filed the merger-related proxy statement with the SEC) and October 26, 2022.


The complaint alleges that during the class period, the defendants failed to disclose to investors: “(1) that, due in part to the expiration of a favorable pricing agreement, the Company was experiencing increasing power costs; (2) that the Company’s largest customer, Gryphon, lacked the financial resources to purchase the necessary miner rigs for Core Scientific to host; (3) that the Company was not providing hosting services to Celsius as required by their contract; (4) that the Company had implemented an improper surcharge to past through power costs to Celsius; (5) that, as a result of the foregoing alleged breaches of contract, the Company was reasonably likely to incur liability to defend itself against Celsius; (6) that as a result of the foregoing, the Company’s profitability would be adversely impacted; (7) that, as a result,  there was likely substantial doubt as to the Company’s ability to continue as a going concern; (8 and that as a result of the foregoing, Defendant’s positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”


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, this new lawsuit is the 52nd SPAC-related securities class action lawsuit to be filed since January 1, 2021. Of those 52 lawsuits, a total of 21 have been filed so far during 2022. However, while there have been a number of these suits filed YTD 2022, the pace of the new SPAC-related securities suit filings have definitely slowed as the year has progressed.


Thus, while there were 17 SPAC-related lawsuits filed during the five months between January 1, 2022 and May 31, 2022, since May 31, there have only been four SPAC-related securities suits filed in the five and a half months since. I suspect that much of the decline in the number of filings is due to the general slump affecting SPACs and de-SPACs generally; with the stock prices beaten down, there are no longer as many high-fliers whose declines might attract the plaintiffs’ lawyers’ attention.


One key feature this lawsuit shares with many of the prior SPAC-related lawsuits is that the suit’s filing followed the publication of a critical short-seller report. According to my reckoning, 21 of the 52 SPAC-related securities suits (about 40%) were filed after the publication of short-seller reports about the defendant companies. However, this key factor may point to another reason for the slump in SPAC-related suit filings this year; the general decline in share prices of SPACs and de-SPAC companies has eliminated many of the big obvious targets that might attract short-seller interest.(In that regard it is interesting to note that the short seller report in this case was published way back in March 2022, not more recently.)


Another particular aspect of interest about this lawsuit is that it is targeted against a company in the digital asset business. Though it is a mining company and storage company, and not in the crypto business as such, its fortunes unquestionably are tied to the whole digital asset phenomenon. By my count, at least 12 of the approximately 171 securities class action lawsuits that have been filed this year (about 7%) are digital asset related, clearly making the suits against digital asset companies an important contributing factor to the total number of securities suits this year. With the recent catastrophic collapse of FTX, the likelihood seems to be that there will be more digital asset-related suits filed in the weeks and months ahead.


One more observation about this lawsuit is that it involves a company that merged with a SPAC from the SPAC IPO class of 2021. Most readers will recall that it was during the first four months or so of 2021 that the SPAC frenzy reached its peak. To date, relatively few of the SPACs from the SPAC IPO class of 2021 have been the target of securities suits; by my count, only four of the 52 SPAC-related securities suits filed since January 1, 2022 have been involved in securities suits. My guess is that the relatively low number of suits against 2021 SPACs is most of them are still in the search mode, seeking a suitable merger partner. (According to SPACInsider (here), 408 of the 613 2021 SPAC IPOs are still in search mode. There would appear to be a substantial likelihood at this point that many if not most of the 2021 SPACs will not find a merger partner.)


While many SPAC-related securities suits have been filed since January 1, 2021, it remains to be seen how the cases will fare. The track record so far, while admittedly limited, is not great for the plaintiffs. Only six of the 52 cases have reached dismissal motion resolutions so far. Of the 52, dismissal motions have been denied in two cases and dismissals have been granted in four cases (of which three were voluntary dismissals). With this track record, with so many SPACs likely headed toward liquidation rather than toward mergers, and with the market for SPACs generally beaten down, it may be that we continue to see fewer SPAC-related lawsuits filed, consistent with what we have seen in terms of filings during the last five and a half months.