de-SPAC transactions

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In a series of statements, comments, and staff actions, the SEC has in recent months evinced a growing concern with SPAC-related activities in the financial marketplace. The agency has now brought its first SPAC-related enforcement action (at least during the current era) against Momentus, Inc., a SPAC-merger target; Stable Road Acquisition Corp., the SPAC itself; and several other participants involved in the SPAC transaction, including the SPAC sponsor. This proceeding may be the first of many. The SEC’s July 13, 2021 press release about the proceedings can be found here. The SEC’s administrative order instituting cease-and-desist proceedings can be found here. The SEC’s separate civil action complaint against the CEO of the merger target can be found here.
Continue Reading SEC Charges SPAC, Merger Target, and Others with Securities Law Violations

One of the most distinct securities litigation phenomena so far this year has been the increase in securities litigation involving post-SPAC-merger operating companies. In the latest example of this type of litigation, a plaintiff shareholder has filed a securities class action lawsuit against used vehicle consignment re-seller CarLotz, which became a public company through a January 2021 merger with a Special Purpose Acquisition Company (SPAC). As discussed below, CarLotz’s first financial reports as a public company disappointed investors and litigation has now ensued. A copy of the July 8, 2021 complaint against the company can be found here.
Continue Reading Used Vehicle Re-Seller Hit with SPAC-Related Securities Suit

In the latest example of a post-SPAC-merger company getting hit with a securities class action lawsuit, the online sports gaming and betting company DraftKings has been sued in a securities suit involving alleged pre- and post-SPAC-merger activity of one of the merged companies. As discussed below, the new lawsuit is the latest SPAC-related securities suit based supposed revelations in a short-seller’s report. A copy of the plaintiff’s complaint can be found here.
Continue Reading DraftKings Hit with SPAC-Related Securities Suit

When senior SEC staff issued a statement in April saying that most warrants issued by SPACs should be treated as liabilities rather than as equity, it triggered a huge slowdown in the previously hot SPAC IPO market. It also forced many existing SPACs to review the way they had previously accounted for warrants; in some instances, individual SPAC companies concluded that they needed to restate their prior financial statements. Now, in a development that highlights the risks that these seemingly obscure accounting issues present, a plaintiff shareholder has filed a securities class action lawsuit against  Virgin Galactic Holdings, a post-SPAC-merger company that restated its financials based on the warrant accounting issue. The May 28, 2021 complaint, a copy of which can be found here, alleges that the company had previously improperly accounted for its warrants, and that the prior accounting treatment violated the securities laws.
Continue Reading Virgin Galactic Hit with Securities Suit Over SPAC Warrant Accounting Issue

In the latest securities class action lawsuit involving a company that recently became publicly traded through a merger with a SPAC, a biodegradable plastics company and certain of its directors and officers have been hit with securities suit following media reports questioning the company’s claims about the biodegradability of its products. The company, Danimer Scientific, is one of several recently sued companies that completed a SPAC merger in December 2020. A copy of the May 14, 2021 complaint against Danimer can be found here.
Continue Reading Post-SPAC Merger Securities Suit Filed Against Bio Plastics Firm

In the latest example of a company that went public through a recent merger with a SPAC getting hit with a securities class action lawsuit, a plaintiff shareholder has filed a securities suit against plastics recycler PureCycle Technologies, certain of its executives, and the former chairman of the company’s SPAC merger partner. Like many of the recent SPAC-related securities lawsuit filings, this new lawsuit followed shortly after the publication of a highly critical short-sellers report. A copy of the plaintiff’s complaint can be found here.
Continue Reading SPAC-Related Securities Suit Filed Against Plastics Recycling Company

In the latest SPAC-related securities class action lawsuit filing, a plaintiff shareholder has initiated a securities suit against Skillz, Inc., an online gaming platform that in December 2020 merged with Flying Eagle Acquisition Corp. (FEAC), a publicly traded special purpose acquisition company (SPAC). The share price of the post-merger publicly traded company declined after short sellers issued reports questioning the company’s revenue recognition practices and other financial details. The lawsuit followed after the share price decline. The individual defendants named in the securities complaint include the former President of FEAC, who became a director of Skillz following the merger. A copy of the plaintiff’s May 7, 2021 complaint can be found here.
Continue Reading Online Gaming Platform Hit with Post-SPAC Merger Securities Suit

In reporting in prior posts on SPAC-related litigation, I have primarily focused on federal court securities class action litigation (for example, here). In addition to the federal court litigation, there has also recently been state-court SPAC-related litigation filed, as I have also briefly noted (here, for example). In early April 2021, the Akin Gump law firm published a client alert memo noting that, at the time, over thirty SPACs has been sued in merger objection lawsuits filed in New York state court. In a May 5, 2021 post on her On the Case blog (here), Alison Frankel updated the Akin Gump filing data and reported that there have now been over 60 New York state court SPAC-related lawsuits filed. As Frankel’s article notes, the litigation itself is only part of the picture, as the plaintiffs’ lawyers involved have also been active in presenting SPACs with pre-lawsuit demand letters as well.
Continue Reading SPAC-Related State Court Merger Objection Litigation

Is the SEC staff about to issue guidelines specifying that the safe harbor for forward looking statements does not apply to SPAC merger transactions? An April 28, 2020 exclusive report on Reuters (here) says that the SEC is considering taking the step. If the agency were to issue guidance restricting the availability of the safe harbor for SPACs, it could significantly restrict SPAC’s use of target company projections in advance of de-SPAC mergers, and even further slow the already cooling SPAC market. The SEC’s possible action is discussed further in an April 29, 2021 post on the Cooley law firms PubCo blog, here.
Continue Reading Are SEC Guidelines on SPAC Projections Ahead?

In what is a notable development in the emerging SPAC-related securities class action litigation scene, the parties to a SPAC-related securities suit involving the streaming media company Akazoo company have reached a partial settlement in the aggregate amount of $35 million. The deal is a partial settlement because claims remain pending against other defendants. As discussed below, the settlement has a number of interesting features. It is, in any event, a noteworthy data point for the discussion about SPAC-related litigation exposures.
Continue Reading Akazoo SPAC-Related Litigation Partially Settled for $35 Million