For the last several years, securities class action lawsuits related to SPACs and de-SPACs have been a significant factor in the overall annual number of securities suit filings. SPAC-related suits remain a significant factor in the number of filings again this year, even though it has now been several years since the peak of the SPAC frenzy. In the latest example, on October 17, 2024, a plaintiff shareholder filed a securities suit against cannabis company WM Technology alleging that both prior to and following its predecessor company’s merger with a SPAC, the company misrepresented a key customer engagement metric. The new lawsuit has some interesting features, as discussed below. A copy of the complaint can be found here.

Background

Silver Spike Acquisition Corp. was a special purpose acquisition company (SPAC). The SPAC completed an IPO on August 8, 2019. On December 10, 2020, the SPAC announced its plans to merge with WM Holding Company. The parties completed the merger on June 16, 2021. Following the transaction, the merged company was known as WM Technology.

Both in the proxy materials in connection with the merger transaction and in its post-merger financial reports and filings, WM Technology referred to a key metric measuring the number of monthly active users (MAU). In an August 9, 2022, filing with the SEC on Form 8-K, the company disclosed that it has received an internal complaint regarding the MAUs were calculated and reported. Its share price declined over 25% on this news.

As the subsequently filed complaint alleged, it was not until September 24, 2024, that investors became aware of all of the aspects of the MAU reporting issue. On that date, the SEC issued a litigation release stating that the agency had charged the company, its former CEO, and its former CFO with public misrepresentation of the MAU metric.

The SEC’s release stated that the metric had been misrepresented the MAU data “during the merger” and after the transaction was completed, saying that the company had “misleadingly reported substantial and continued MAU growth.” The SEC’s release further stated that the company had agreed to enter a cease-and-desist order and also agreed to pay a civil penalty of $1.5 million.  The complaint alleges that the company’s share price fell further on this news.

The Lawsuit

On October 17, 2024, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against WM Technology; certain of its present and past officers and directors; and directors and officers of the SPAC. The complaint purports to be filed on behalf of a class of investors who purchased shares of WM Technology, as well as of the SPAC prior to the merger, during the period May 25, 2021 (when the merger related proxy statement was filed with the SEC) and September 24, 2024 (when the SEC issued its Litigation Release).

The complaint alleges that the proxy materials were “materially false and misleading at the time … because the monthly active user (MAU) metric had been willfully inflated and did not accurately represent the amount of monthly active users.” The complaint further alleges that the post-merger filings were “false because the Company, in allowing a key financial metric to be manipulated, did not maintain adequate internal controls over financial reporting.”

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

The allegations in this complaint go back a long way. They go back sufficiently far that you have to kind of wonder whether or not there could be statute of limitations issues. The complaint anticipates this, by including an allegation, with respect to the SEC’s Litigation Release, that “it was not until September 24, 2024, that Plaintiff and the class became aware of all the facts constituting this claim – particularly the element of scienter on the part of Defendants.” It will be interesting to see if the timeliness of the complaint does become an issue in this case, and if so whether the plaintiff’s argument about the elements of the claim is a sufficient response.

In any event, this claim will certainly seem stale to the former directors and officers of the SPAC. They completed their SPAC IPO all the way back in 2019, before the whole SPAC frenzy really hit its crescendo. The merger itself was completed more than three years ago, also a long time ago. If nothing else, this complaint highlights the reason why SPAC execs want their post-merger run off policy to have a six-year tail rather than just a three-year tail.

The fact that this lawsuit is only coming in now, in relation to a SPAC that completed its IPO all the way back in 2019, is also a reminder that the extent of the litigation following the SPAC wave is still being calculated. Certainly, the lawsuits coming in, including this lawsuit, show that it may be some time before the extent of the litigation associated with the SPAC wave can be fully measured. I say this because I have had some commentators say to me, hey, there never really was as much SPAC related litigation as you projected. I am never quite sure where this comment is coming from, because I don’t remember being way out front on projecting extensive SPAC-related litigation, but in any event, it may be premature to suggest that we now know how much SPAC-related litigation there is or will be. The lawsuits relating to years-ago SPACs are, as this case demonstrates, still coming in.  

According to the tally of the Stanford Law School Securities Class Action Clearinghouse, there has now been, with the inclusion of this latest lawsuit, eight SPAC-related securities class action lawsuits filed so far in 2024 (compared to 20 for the full year 2023). Since January 1, 2021, there has been a total of 90 SPAC-related securities class action lawsuits filed, according to the Stanford website.