One of the most important securities class action litigation trends in recent years has been the wave of securities lawsuits involving SPACs. And while as time has passed since the peak of the SPAC IPO frenzy in late 2020 and early 2021, SPAC-related securities class action suits continue to be filed. The latest example is the securities suit filed earlier this week against the electric vehicle company Fisker, which merged with a SPAC in 2020. A copy of the November 27, 2023, complaint can be found here.

Background

Spartan Energy Acquisition Corp. (SEAC) was a SPAC, backed by the private equity firm Apollo Global Management. SEAC completed an IPO on August 10, 2018. On July 13, 2020, SEAC announced its plans to complete a business combination with Fisker, an electric vehicle company. The business combination was completed on October 29, 2020, with Fisker as the surviving company.

On November 8, 2023, Fisker announced that the completion of its financial statements would be delayed due to its appointment of a new chief accounting officer and the departure of its former CAO. The new CAO, Florus Beuting, was hired effective November 6, 2023. The company said that it expected to file its Form 10-Q by November 14, 2023.

On November 13, 2023, the company announced its financial results for the third quarter 2023. Among other things, the company announced a loss of over $90 million, cut its production forecast for the year, and also reported that while the company built over 4,200 vehicles in the quarter, only about 1,000 vehicles were delivered to customers. The company also announced that it would be unable to timely file its Form 10-Q for the third quarter; the company said that in preparing its financial results it had determined “it has material weaknesses” in “internal control over financial reporting.”

In an earnings call later the same day, the company said that the delay in reporting was due to having “a highly complex quarter” including “very complex accounting along with convertible notes and accounting for derivatives” and “things like raw material inventory accounting and finished goods inventory accounting.” The company also disclosed that “delivery and service infrastructure” was limiting deliveries, and as a result, the company was “in the process of dramatically overhauling our service and delivery infrastructure.” The company’s share prices fell over 18% on this news.

On November 20, 2023, the company disclosed that the new CAO, who had just joined the company on November 6, 2023, had provided notice of his intent to resign from the company on November 14, 2023, effective immediately. The company’s share price fell a further 15% on this news.

Finally, on November 22, 2023, the company filed its Form 10-Q for the third quarter, disclosing that it had “identified approximately $20 million in expenses” which were “incorrectly recorded primarily as selling, general and administrative expenses in our preliminary earnings results, but were later determined to be associated with production set-up activities” and that “other inventory adjustments were recorded resulting in a $4.0 million in crease in net loss subsequent to the preliminary earnings results.”

The Lawsuit

On November 27, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against Fisker, its CEO, its CFO, and its former CAO. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between August 4, 2023, and November 20, 2023.

The complaint alleges that during the class period the defendants failed to disclose to investors: “(1) that Fisker had material weakness in its internal controls over financial reporting; (2) that Fisker had incorrectly accounted for certain costs; (3) that as a result the Company was likely to delay filings its quarterly report; (4) that Fisker’s infrastructure was limiting its ability to deliver its production; and (5) that, as a result of the foregoing, Defendants’ 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.

Discussion

Fisker became a public company through a business combination with a SPAC. The complaint expressly refers both to the SPAC and to the business combination. For that reason, I have counted this lawsuit as SPAC-related.

However, reasonable minds could differ on whether this new lawsuit fairly counts as SPAC-related. The lawsuit was filed over three years after the SPAC merger was completed. The beginning of the class period is also nearly three years after the merger. None of the former SPAC executives is named as a defendant, nor is the SPAC sponsor. No misrepresentations are alleged in connection either with the SPAC itself or the merger.

Indeed, this lawsuit highlights that as time has passed, the relevance of SPAC-related activities is diminishing. As the peak of the SPAC frenzy that took place in late 2020 and early 2021 recedes into the past, the prospect of further SPAC-connected allegations is kind of aging out. As further time goes by, the whole SPAC-related litigation phenomenon may itself become a thing of the past.

For now, at least, because of the complaint’s reference to the company’s SPAC merger, I have counted this suit as SPAC-related. With the filing of this suit and its addition to the list of SPAC-related suits, there have now been a total of 66 SPAC-related lawsuits filed since January 1, 2023, including 12 in calendar year 2023. (By way of contrast, there were 23 SPAC-related lawsuits filed in 2022.)

It is noteworthy that this lawsuit involved an electric vehicle company. A significant aspect of the SPAC-related litigation phenomenon has been the extent to which the SPAC-related suits have involved companies in the electric vehicle industry. By my count, 20 of the 66 SPAC-related securities suits (approximately 30%) that have been filed since January 1, 2021 have involved companies in the electric vehicle industry.

I suppose that is in part due to the fact that the SPAC frenzy coincided with a crescendo of interest in electric vehicles, such that many of the SPACs that were launched targeted electric vehicle companies. The significant number of EV companies named in SPAC-related suits may also be due to the fact that EV companies enjoyed heightened valuations and elevated post-merger share prices, which set the company’s investors up for disappointment when the company’s fell short of the pre-merger hype. And many EV companies have indeed disappointed investors, as all too many of them, like this one, have literally failed to deliver.

In any event, while it seems that the SPAC-related litigation phenomenon should fade in the months ahead, for now at least, SPAC-related lawsuits for now at least remain a significant factor in the total number of securities class action lawsuit filings.