April 14, 2021

SPACs: Here Come the Lawsuits. . .

SPACs have caused an earthquake in the capital markets over the past year, and now it looks like the inevitable tsunami of litigation may be beginning to build.  This Sidley blog details the acceleration of SPAC litigation in the Delaware courts, while this Akin Gump memo reviews the burgeoning SPAC litigation in the New York courts.

Here’s an excerpt from the intro to the Sidley blog on what’s happening in Delaware:

Historically, SPACs have been the target of litigation relatively infrequently, but that trend is changing with the recent SPAC boom and the corresponding increase in public awareness and interest (including from regulators, short sellers, and the securities plaintiffs’ bar).  Along with the increase in federal securities suits filed against pre- and post-de-SPAC companies, a trend likewise may be emerging in the Delaware Court of Chancery: a handful of stockholder suits alleging breach of fiduciary duties have been filed against SPAC entities and/or their boards of directors recently.

Meanwhile, in The Empire State, Akin Gump says that:

– Between September 2020 and March 2021, at least 35 SPACs have been hit with one or more shareholder lawsuits filed in New York state court.

– These lawsuits generally allege that SPAC directors breached their fiduciary duties to shareholders by providing allegedly inadequate disclosures regarding proposed de-SPAC mergers. Some of these lawsuits also assert claims against the SPAC itself, as well as the target company and its board of directors, for allegedly aiding and abetting the SPAC directors’ breaches.

– Although these cases are in their early stages and assert claims that are limited in scope, they signify that the plaintiffs’ bar is actively monitoring and pursuing SPACs. As additional de-SPAC transactions are announced and close, SPAC shareholder lawsuits are likely to multiply, potentially subjecting SPACs, their boards and sponsors to more significant civil risk and exposure.

Sidley & Akin Gump’s publications both go on to summarize some of the key pieces of SPAC litigation filed so far in the respective states – and both suggest that these cases may be just the start.

John Jenkins