In my recent review of the 1H24 securities class action litigation filings (here), I noted that SPAC-related securities suits were less of a factor in the overall number of suit filings during the year’s first six months than they had been in recent years. However, even though the peak of the SPAC frenzy was several years ago now, SPAC-related securities suits are continuing to be filed. The latest example is the SPAC-related securities suit filed late last week against SeaStar Medical Holding Corporation, which is the product of a 2022 SPAC merger. The new lawsuit has several interesting features, as discussed below. A copy of the July 5, 2024, complaint in the lawsuit can be found here.


LMF Acquisition Opportunities, Inc., a special purpose acquisition company (SPAC), completed an IPO on January 25, 2021. On April 22, 2022, the SPAC announced its plan to merge with SeaStar Medical, Inc. (Legacy SeaStar). The merger was completed on October 28, 2022, and on October 31, 2022, the merged companies began trading on Nasdaq under the name SeaStar Medical Holding Corporation.

In connection with the planned merger, the parties highlighted the regulatory and commercial prospects for Legacy SeaStar’s Selective Cytopheric Device (SCD) for the treatment of hyperinflammation. The companies also announced that Legacy SeaStar planned to apply for approval with the FDA under the Humanitarian Device Exemption (HDE) to commence commercialization of the SCD for the treatment of pediatric acute kidney injury (AKI). On July 20, 2022 (that is, before the completion of the merger), the SPAC and Legacy SeaStar announced that Legacy SeaStar had submitted the HDE application.

On October 17, 2022 (that is, just before the merger was completed), the company announced that it had entered into an equity prepaid forward transaction (Prepaid Forward Agreement), that would permit a third-party investor to purchase shares of the company on certain terms.

On May 9, 2023 (that is, several months after the merger was completed), SeaStar announced that it had received a letter from the FDA rejecting the HDE application for the SCD. On this news the company’s share price decline nearly 40%.

On March 27, 2024, SeaStar announced that it would restate its financials for 2022 as well as for the first, second, and third quarters of 2023. The company disclosed that the restatement would impact the accounting treatment and classification of certain outstanding warrants and the Prepaid Forward Agreement. The company’s CEO said that the restatement “is related to the reporting of non-cash accounting items,” observing that “we pursued a [SPAC} as our route to becoming a public company in late 2022 due to the challenging market conditions at that time,” but that “many SPACs, including ours, relied on a host of complex financial instruments” and “unfortunately we determined that certain complex financial instruments required accounting treatment that differed from our previous judgment, which led to the need for a restatement.” According to the subsequently filed complaint, the company’s share price fell approximately five percent on this news.

The Complaint

On July 5, 2024, a plaintiff shareholder filed a securities class action complaint in the District of Colorado against SeaStar and certain of its directors and officers. The complaint purports to be filed on behalf of a class of persons who purchased the company’s securities between October 31, 2022 (the date the shares of the merged company began trading on Nasdaq) and March 26, 2024.

The complaint alleges that during the class period, the defendants failed to disclose that: “(i) SeaStar and or/Legacy SeaStar had deficient compliance controls and procedures related to the HDE Application: (ii) accordingly, there were deficiencies with the HDE Application, the FDA was unlikely to approve the HDE Application in its present form, and the SCD’s regulatory prospects were overstated; (iii) the Company downplayed the true scope and severity of deficiencies in its financial controls and procedures, while overstating Defendants’ efforts to remediate the same; (iv) accordingly, SeaStar had failed to properly account for the classification of certain outstanding warrants and the Prepaid Forward Agreement; (v) as a result, SeaStar was likely to restate one or more of its previously issued financial statements; (vi) accordingly, SeaStar’s post-merger business and financial prospects were overstated; and (vii) as a result, the Company’s public statements were materially false and misleading at all relevant times.”

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 plaintiff class.


This lawsuit is not “SPAC-related” merely because it involves a publicly traded company that is the result of a SPAC merger. It is also “SPAC-related” because it involves, at least in part, allegations that pertain to the SPAC-related corporate structures and transactions. To be sure, the complaint’s allegations also relate to the disappointing results of the company’s application to the FDA for a Humanitarian Device Exemption (HDE) for its SCD device. But the complaint also involves allegations relating to the company’s need to restate its financials with reference to the company’s accounting treatment of warrants and the Prepaid Forward Agreement. This isn’t just a lawsuit about a company that happened to have been involved in a SPAC transaction. This is a lawsuit with allegations directly pertaining to aspects and attributes of the SPAC transaction itself, and in particular to the accounting for those aspects and attributes.

It is noteworthy, to me at least, that this lawsuit pertains to a company that merged with a SPAC from the SPAC IPO class of 2021. 2021 was of course the peak of the SPAC frenzy. It is telling that here we are three years from the peak SPAC IPO activity and lawsuits are still being filed against companies involved in a transaction with a SPAC from the SPAC IPO class of 2021.

The fact that this company found itself required to restate its financials for the financial reporting periods that followed after the completion of the SPAC merger suggests that, like so many of the post-SPAC merger companies, this company may not have been fully prepared for the requirements, burdens, and scrutiny that go with being a public company.

The kinds of problems this company encountered are worth considering at a time when there are signs that, despite everything, there may be renewed interest in SPACs and SPAC transactions (as discussed, for example, here). This company’s accounting restatement issues are a reminder that though a SPAC merger is not the same as a full-blown IPO transaction, the burdens and scrutiny the post-merger company will face as a newly public company are significant, nonetheless.

In any event, according to my tally, there has now been a total of five SPAC-related securities class action lawsuits filed so far in 2024 (compared to 12 for the full year 2023). Since January 1, 2021, there has been a total of 71 SPAC-related securities class action lawsuit filed.