Report: SPACs Increasingly Involved In Shareholder Litigation

According to a report from Reuters, special-purpose acquisition companies (SPACs) have recently come under the microscope and are now facing a wave of litigation. Class action shareholder lawsuits involving special-purpose acquisition companies are up by more than 400 percent since this last year. Here, our West Palm Beach shareholder disputes lawyers provide an overview of the report and discuss SPAC litigation in general.

Special-Purpose Acquisition Companies (SPACs): Explained 

A special-purpose acquisition company is a shell company that is listed on a public stock exchange, such as the Dow Jones Industrial Average, the NASDAQ Composite, or the New York Stock Exchange. In general, SPACs are created with the purpose of acquiring a private company.

The Sharp Rise in SPACs (And SPAC Litigation) 

SPACs have boomed over the last eighteen months. The Wall Street Journal reports that special-purpose acquisitions companies in the United States raised more than $82 billion in 2020 alone. For reference, that means that more money was put into SPACs that year than the previous 20 years combined. With the rise of SPACs has also come a rise in SPAC-related shareholder disputes.

Reuters reports that 26 class action lawsuits involving SPACs were filed in the first 10 months of 2021. That is a significant jump over the previous year—only five SPAC-related shareholder class action lawsuits were filed in all of 2020. The rise in civil lawsuits comes at the same time as the Securities and Exchange Commission (SEC) is ramping up enforcement action against SPACs.

SPAC Shareholder Lawsuits: Questions About Lack of Disclosures and Misrepresentations 

Every shareholder dispute is different. Class action shareholder lawsuits centered around special purpose acquisition companies are being filed for a wide range of different reasons. That being said, there are some notable commonalities in many of these lawsuits. As a non-public company is being acquired, a SPAC can be a bit of a “black box.” Questions are being raised about lack of disclosures, material omissions, and material misrepresentations.

An Example of a SPAC Shareholder Lawsuit 

One of the most highly publicized SPAC shareholder lawsuits involves the Nikola Motor Company, a manufacturer of heavy duty commercial electric vehicles. In July of 2021, the SEC charged the company’s founder and former CEO Trevor R. Milton with securities fraud. Federal regulators contend that the Nikola Motor Company raised more than $1 billion for its SPAC by  disseminating false and misleading information, including making significant overstatements regarding its technology. Business owners and other parties raising money through a SPAC still have a legal responsibility to make accurate, comprehensive disclosures to actual and prospective shareholders.  

Contact Our South Florida Shareholder Lawyers Today

At Pike & Lustig, LLP, our Florida shareholder dispute attorneys are skilled, reliable advocates for shareholders. If you have any questions about SPAC litigation, we are here to help. Give us a call now for a fully confidential case evaluation. Our law firm represents clients in shareholder litigation throughout Southeastern Florida, including in Miami and West Palm Beach.

Resources:

wsj.com/articles/when-spacs-attack-a-new-force-is-invading-wall-street-11611378007

reuters.com/legal/transactional/spacs-under-microscope-lawsuits-mount-2021-11-01/