As readers know, in recent years I have been tracking two securities class action litigation filing trends:  the filing of SPAC-related lawsuits, and the filing of COVID-related lawsuits. In a noteworthy development, a securities suit filed last week embodies both of these filing trends. That is, a company that was formed through a SPAC merger has been hit with a securities suit based on COVID-related allegations. As discussed below, the new lawsuit has several interesting features. A copy of the February 28, 2024, complaint can be found here.


Khosla Ventures Acquisition Co. II was a special purpose acquisition company (SPAC). Khosla completed an IPO on March 26, 2021. On July 6, 2021, Khosla announced its plan to merge with Nextdoor Private. The merger was completed on November 5, 2021, with the surviving company named Nextdoor Holdings, Inc.

Nextdoor maintains an internet platform permitting neighbors, public agencies, and businesses to connect in a “neighborhood network.” The platform enables users to exchange information, services, and goods. The company’s primary revenue source is through sales of advertising on its platform. The company’s two primary business metrics are Weekly Active Users (WAU) (number of users in a defined time period) and Average Revenue Per Weekly User (APRU).

Beginning in 2020, due to pandemic-related shelter-in-place mandates, usage on the company’s platform increased significantly. In July 2021, amidst these favorable trends, the proposed merger with Khosla was announced. In the merger announcement, the companies stated that Nextdoor’s growth was poised to continue; that the company had a huge runway ahead; that its addressable market was “large and still untapped”; and that its revenue growth “could be sustained into the future.” In the run up to the shareholder vote on the merger, many of these favorable statements concerning Nextdoor’s continued growth potential were repeated.

However, on March 1, 2022, when Nextdoor announced its financial results for the fourth quarter and full year 2021, the company announced that its revenue growth and ARPU had both actually declined significantly. According to the complaint, the company’s shares declined 14% on this news. The complaint further alleges that the company would go on to report three consecutive quarters of disappointing financial and operational results. Among other things, and contrary to the various prior statements that the company was poised for significant future growth, the company ultimately reported that its ARPU declined for full year 2022. The complaint alleges that the price of the company’s common stock declined from a high to $18.59 shortly after the merger to $2.06 at the end of the class period.

The Lawsuit

On February 28, 2024, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Nextdoor; certain of the former SPAC’s directors and officers; certain individuals who served as directors and officers of both the SPAC and of the post-merger company; the SPAC sponsor; and the sponsor’s venture capital financial backer. Certain of the individuals named as defendants also served as directors or officers of the SPAC sponsor and/or the sponsor’s financial backer. The complaint purports to be filed on behalf of persons who purchased securities of Nextdoor, or, prior to the merger, securities of the SPAC, between July 6, 2021 (the date the merger was announced) and November 8, 2022 (the date on which Nextdoor filed with the SEC its quarterly report on Form 10-Q for the third quarter 2022).

The complaint alleges that the defendants failed to disclose: “(a) that Nextdoor’s financial results prior to the Merger had been temporarily inflated by the ephemeral effects of the COVID-19 pandemic, which had pulled forward demand for Nextdoor’s platform and cannibalized future advertising revenue growth; (b) that, rather than being sustained, such growth trends had already begun reversing at the start of the Class Period; (c) that Nextdoor’s total addressable market was materially smaller than the 312 million households represented to investors; (d) that, by the start of the Class Period, Nextdoor’s most important market – the U.S. market – was already substantially saturated, impairing the Company’s ability to monetize users and increase its ARPU or U.S. WAUs; (e) that, as a result of (a)-(d) above, Nextdoor’s revenue guidance for fiscal year 2022 had not reasonable basis in fact and the Company was tracking tens of millions of dollars below the revenue trajectory provided to investors.”

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 alleged damages on behalf of the putative class.


The thing that jumped out at me about this complaint – other than the fact that the complaint is, as I noted at the outset, a two-fer – is the end date of the proposed class period. The proposed class period ends on November 8, 2022, nearly a year and a half ago: well within the statute of limitations, but in terms of the time frames within which securities litigation typically gets filed, it is ancient history.

The belated filing of this lawsuit has significance for me because of the fact that this case embodies, as I also noted at the outset, two filing trends that I frankly thought had just about run their course. I fully expected that after the end of 2023, we likely would not be seeing much or even any securities litigation relating to SPACs or relating to COVID-19. Yet here is the lawsuit that embodies both of these trends. Moreover, this case is not the first of 2024 to reflect one or the other of these two trends.

Thus, as I noted in a recent post (here), even before the filing of this new lawsuit, and even though we are just about to enter the fifth year since the initial COVID outbreak in the U.S., there had already been three COVID-related lawsuits filed in 2024. This new lawsuit makes it four COVID-related lawsuits filed this year (and a total of 75 since the initial coronavirus outbreak in the U.S. in March 2020). In addition, this new lawsuit is also the second SPAC-related securities suit to be filed this year (and the 68th overall since January 1, 2021).

It is in the context of thinking about the fact that these kinds of lawsuits are still be filed that the long-ago class period end date here seems particularly relevant. The fact that this lawsuit, relating to a relatively long-ago class period, is only now just getting filed does put the question of what we may expect for further lawsuits relating to either of the two now long-lived filing trends; for example, if there other belated lawsuits like this one still in the pipeline, the seemingly played-out filing trends could wind up rolling on for much longer than I anticipated.

One final note with respect to the COVID-related allegations. Two of the three COVID-related lawsuits previously filed in 2024, like this one, relate to companies that initially prospered at the outset of the pandemic, but whose fortunes waned as the pandemic progressed. That is certainly the case here, as well as in the lawsuits filed earlier this year against BioNTech (discussed here) and Dick’s Sporting Goods (here). I emphasize this point because this may suggest an area of interest as insurance underwriters try to assess whether an insurance applicant may carry a latent continuing COVID-related litigation risk or otherwise represent a continuing risk for a related COVID-related claim.

SEC Charges Lordstown Motors with Misleading Investors: As detailed in a recent guest post on this site (here), the SEC has launched a number of SPAC-related enforcement actions. These SPAC-related actions are continuing to work their way through the system. On Thursday, the SEC announced a settled enforcement action against the bankrupt electric vehicle company, Lordstown Motors. Lordstown became a publicly traded company through a merger with a SPAC.

As reflected in the SEC’s February 29, 2024, press release (here), the SEC alleged that Lordstown misled investors by claiming that the company had received over 100,000 binding “pre-orders” for its electric truck, the Endurance, from commercial vehicle fleet customers. In reality, the SEC alleged, the pre-orders came from companies that did not operate fleets or intend to buy the truck for their own use.

Lordstown agreed to a cease-and-desist order and disgorgement of $25.5 million, which will be deemed satisfied by payments of up to $25.5 million by Lordstown and other defendants to resolve pending securities class actions against them.

As noted here, the separate securities litigation that figured into the resolution of the SEC enforcement action was itself an example of a SPAC-related securities class action lawsuit, as discussed here.

Musk Sues Open AI, Sam Altman Over the Firm’s Profit: Given the clash of the titans aspect of the lawsuit, it is easy to overlook the fact that the complaint that Elon Musk filed last week against Open AI, its CEO and founder Sam Altman, and its co-founder Greg Brockman, is also a D&O lawsuit. Musk was one of the founding investors in Open AI. In his new lawsuit, Musk alleges that the firm and its co-founders breached the firm’s founding agreement by giving priority to profit over the benefits to humanity.

The complaint in the lawsuit (a copy of which can be found here) was filed on Thursday in California state court in San Francisco. The complaint asserts claims for breach of contract; promissory estoppel; breach of fiduciary duty; unfair competition; and for an accounting. Basically, Musk alleges that Open AI has violated its founding principles through its relationship with Microsoft and its willingness to allow Microsoft (and Open AI) to profit from the firm’s AI product.

One can only speculate on what Musk hopes to achieve in bringing the lawsuit, but I will say this, the lawsuit represents some kind of a milestone; it is the very unusual kind of lawsuit where an early investor in a start-up technology venture sues the start-up’s founders for making a lot of money.