In two dismissal motion grants last week in pending SPAC-related securities suits, the respective courts’ rulings could have potential significance for other pending or prospective SPAC-related cases. The January 10, 2023, ruling in the SPAC-related suit involving DraftKings has important implications for the many pending SPAC-related cases based on short seller reports, and the January 11, 2023, ruling in the Lucid case has potential implications for SPAC-related securities suits based on alleged pre-merger misrepresentations. The two rulings and their potential significance are discussed below.
On January 4, 2023, Delaware Vice Chancellor Lori Will denied the defendants’ motion to dismiss in the breach of fiduciary duty case a shareholder of the SPAC, Gig Capital3 Inc. (Gig3), against the SPAC’s sponsor and its board of directors in connection with the SPAC’s May 6, 2021, merger with Lightening eMotors. Essentially, the plaintiff alleged that the defendants withheld information about the dilutive impact of the transaction on the cash value of the investors’ shares, depriving the investors of the information they need to decide whether or not to redeem their shares.
In a ruling substantiating well-publicized contentions of Stanford Law Professor Michael Klausner about SPACs’ structural flaws (doubly noteworthy because Klausner acted as co-counsel for the plaintiff in the Gig3 case), Vice Chancellor Will denied the defendants’ dismissal motion, raising questions about whether similar allegations could be raised against a host of other SPACs, as discussed below. A copy of Vice Chancellor Will’s opinion can be found here.…
In my recent wrap-up of the top D&O stories of 2022, I noted that one of last year’s key topics was the quantity of litigation involving special purpose acquisition companies (SPACs). It now appears that this trend is continuing into the new year. Late last week, a plaintiff shareholder filed a SPAC-related securities suit against battery development company Enovix, alleging that the company had misrepresented its manufacturing capabilities. A copy of the January 6, 2023, complaint against the company can be found here.…
As 2022 came to an end, many SPAC sponsors and executives, concerned about the possible onset on January 1, 2023, of an excise tax on amounts to be returned to investors, moved to liquidate their SPACs. As discussed further below, concerns about the possible applicability of the tax have now been alleviated, but given the general marketplace conditions for SPAC merger transactions, it seems likely that there will be further SPAC liquidations ahead in the new year. The possibility of a SPAC liquidation raises a number of considerations, including also important considerations with respect to D&O insurance.
Continue Reading SPAC Liquidations and D&O Insurance
As I noted in my recent round-up of D&O insurance issues, one of the consequences of the end of the SPAC IPO boom is that many of the SPACs from the IPO classes of 2020 and 2021 have given up trying to find a merger target and instead have opted to liquidate – which raises the question whether liquidation could lead to litigation. On the one hand, where’s the harm, since the investors get their money back. On the other hand, in our litigious society, litigation often follows after disappointed expectations. A December 30, 2022, lawsuit brought by SPAC investors against the SPAC, its sponsors, and its directors and officers, may provide an example of how litigation can arise in the wake of a SPAC liquidation.
Continue Reading Liquidating SPAC Hit With Suit Over Proposed Asset Distribution
The directors’ and officers’ liability environment is always changing, but 2022 was a particularly eventful year, with important consequences for the D&O insurance marketplace. The past year’s many developments also have significant implications for what may lie ahead in 2023 – and possibly for years to come. I have set out below the Top Ten D&O Stories of 2022, with a focus on future implications. Please note that on Thursday, January 12, 2023 at 11:00 AM EST, my colleagues Marissa Streckfus, Chris Bertola, and I will be conducting a free, hour-long webinar in which we will discuss The Top Ten D&O Stories of 2022. Registration for the webinar can be found here. I hope you will please join us for the webinar.…
After a several months-long lull in which relatively few SPAC-related securities suits were filed, plaintiffs’ lawyers have now in the past several days filed several new cases. The latest example is the lawsuit filed late last week against the electric scooter company Bird Global, Inc., which merged with a publicly traded SPAC in November 2021. The lawsuit comes after the company’s announcement on November 14, 2022 that due to a reporting error the company would be restating its previously published financial statements for several prior reporting periods. A copy of the November 17, 2022 complaint can be found here.
Continue Reading Electric Scooter Company Hit With SPAC-Related Securities Suit
Although there have been literally dozens of SPAC-related securities class action lawsuits filed since January 1, 2021, in recent months the pace of filing of these lawsuits has noticeably slowed. After an extended period when many of these suits were filed each month, during the period since May 31, 2022 only three of these suits have been filed. However, this past week, a SPAC-related securities lawsuits was filed against Core Scientific, a digital mining company that merged with a SPAC in January 2022. As discussed below, this latest filed lawsuit has several interesting features. A copy of the complaint filed against Core Scientific can be found here.
Continue Reading Digital Asset Mining Company Hit with SPAC-Related Securities Suit
As I have previously noted, plaintiffs’ lawyers have over the last several months filed a plethora of securities class action lawsuit against companies that became publicly traded through a merger with a Special Purpose Acquisition Company (SPAC). Since these cases have only just been filed, few of the cases have yet reached the initial pleading hurdles. However, in a ruling last week, Central District of California Judge Christina A. Snyder denied in part the defendants’ motion to dismiss the securities suit pending against electric vehicle company Faraday Future Intelligent Electric, Inc., which became a public company through a June 2021 merger with a SPAC. As discussed below, the ruling may have significance for a number of the recently filed SPAC-related securities suits. A copy of Judge Snyder’s October 20, 2022 order can be found here.
Continue Reading Court Denies in Part Motion to Dismiss SPAC-Related Securities Suit Against EV Company
In the latest lawsuit to emerge in the aftermath of the recent SPAC frenzy, a plaintiff shareholder has filed a securities class action suit against Opendoor Technologies, a residential real estate digital platform, which merged into a publicly traded SPAC in December 2020. The SPAC involved was one of the many financial vehicles launched by the so-called “King of SPACS,” Chamath Palihapitiya, while the SPAC craze was picking up steam. A copy of the October 7, 2022 complaint can be found here.
Continue Reading SPAC-Merged Real Estate Platform Hit with Securities Suit