In my recent mid-year review of the year-to-date securities lawsuit filings, I noted that certain factors that had contributed significantly to the number of securities suits filed in 2022 were less of a factor in the first six months of 2023. Among these diminished factors was the number of SPAC-related lawsuit filings. But while the number of SPAC-related suit filings has been down so far this year, SPAC-related suits are nonetheless still being filed. The latest example of a SPAC-related filing this year is the suit filed on July 6, 2023, against the Israeli company, Hub Cyber Security, Ltd., which became a Nasdaq-listed company following the February 2022 merger of its predecessor operating company with a SPAC.  The new lawsuit illustrates the ways in which litigation can arise against companies that are the product of completed SPAC mergers.


Mount Rainier Acquisition Corp. was a special purpose acquisition company (SPAC). It completed its IPO on October 5, 2021. On March 23, 2022, the SPAC announced its plans to merge with Hub Cyber Security (Israel) Ltd. (Legacy Hub). The merger was completed on February 28, 2023. Legacy Hub had been formed in 2017 by former members of the Israeli Defense Forces to provide cybersecurity solutions. Prior to the merger, Legacy Hub’s shares were traded on the Tel Aviv Stock Exchange. Following the merger, Hub ceased to be traded on the Tel Aviv exchange and began trading on the Nasdaq exchange.

When Legacy Hub and Mount Rainier collectively announced their intent to merge the two companies, the companies said, among other things, that Legacy Hub’s founders would continue to lead the combined companies, and that Mount Rainier expected that its cash available at the time of the merger would include the proceeds of an anticipated $50 million PIPE offering to be completed in advance of the merger. In subsequent statements made prior to the merger, Legacy Hub’s CEO said that investors had made “irrevocable commitments” to invest $50 million in the PIPE financing.

On February 2, 2023 — that is, prior to the completion of the merger but after Legacy Hub shareholders had voted to approve the merger — Legacy Hub accepted its CEO’s resignation and appointed him as President of the company’s U.S. operations.

On March 1, 2023 – that is, after the merger was completed – Hub filed a report on Form 6-K, which stated, among other things, that “as a result of redemptions from [Mount Rainier’s] trust account and the failure of the PIPE financing to be consummated, the Company waived the Minimum Cash Condition [in the merger agreement] in order to proceed to close the Business Combination.”  The company subsequently announced the completion of various PIPE financing transactions in dollar amounts that in the aggregate totaled less than $50 million.

On April 20, 2023, Hub filed a report on Form 6-K in which the company disclosed that its board had “appointed a special committee of independent directors in order to investigate and assess certain allegations of potential misappropriation and other potential fraudulent actions raise against a former senior officer of the Company.” On May 15, 2023, the company announced that because of the ongoing special committee investigation, the company was delaying its annual report and filing on Form 20-F. The company later announced that it had been notified by Nasdaq that it was out of compliance with Nasdaq rules regarding minimum share prices.

The subsequently filed securities complaint alleges that as a result of the various post-merger announcements, the company’s share price has declined significantly below its valuation at the time of the completion of the merger.

The Lawsuit

On July 6, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Hub. The complaint purports to be filed on behalf of all Legacy Hub shareholders who acquired Hub stock through the merger. A copy of the complaint can be found here.

The complaint alleges that leading up to the merger, Legacy Hub incorrectly represented that: “(a) private investment in public equity (PIPE) financing at the time of the merger was committed; and (b)the combined company would be led by HUB’s current management team, including Founder and Chief Executive Officer, Eyal Moshe.”

The complaint alleges that Hub violated Section 12(a)(2) of the Securities Act against Hub. The complaint emphasizes that the claim asserted in the complaint does not sound in fraud. Plaintiff does not allege that the defendant had acted with scienter or fraudulent intent. The complaint seeks to recover damages on behalf of the class.


There are several interesting aspects of this complaint. The first is that the complaint only alleges violations of Section 12(a)(2). It does not allege violations either of Section 11 or Section 15 of the Securities Act, which are claims that often (usually?) accompany Section 12(a)(2) claims. But because the complaint includes only a Section 12(a)(2) claims, the only named defendant in the lawsuit is Hub itself, no individual defendants are named, because Hub purportedly is the statutory seller that allegedly can be held liable under Section 12(a)(2).

The defendant company undoubtedly will seek to argue, among other things, that certain of the statements on which the plaintiff seeks to rely were either not made in the prospectus or were accompanied by meaningful cautionary disclosures sufficient to bring the statements within the safe harbor. The defendant will also undoubtedly argue that the plaintiff’s alleged losses were cause by factors other than the departure of the predecessor company’s CEO or the failure to complete the PIPE offering. It will be interesting to see how this rather unusual lawsuit fares.

By my count, this lawsuit is the 62nd SPAC-related securities lawsuit to be filed since January 1, 2021, and the 8th SPAC-related securities suit to be filed so far in 2023. (There were 23 SPAC-related securities suits filed in calendar year 2022.) It seems likely that as time progresses, the number of SPAC-related lawsuit filings will diminish as increasing numbers of SPACs that completed their IPOS during the SPAC IPO heyday in 2020 and 2021 reach the end of their 24-month search period without completing a business combination. The overall slump in the SPAC market and the resulting diminished expectations also means that fewer SPAC-merged companies are trading at heightened valuations of the type that make companies vulnerable to a sharp stock drop on the announcement of disappointing news.

While this new case filing does show that SPAC-related lawsuits continue to be filed, it will be interesting to see how many additional SPAC-related securities suits are filed as the year progresses.