SPAC Task Force
Robbins Geller Rudman & Dowd LLP has launched a dedicated SPAC Task Force to protect investors in blank check companies and seek redress for corporate malfeasance. Comprised of experienced litigators, investigators, and forensic accountants, the SPAC Task Force is dedicated to rooting out and prosecuting fraud on behalf of injured SPAC investors. The rise in blank check financing poses unique risks to investors. Robbins Geller’s SPAC Task Force represents the vanguard of ensuring integrity, honesty, and justice in this rapidly developing investment arena.
Robbins Geller is widely regarded as a leader in the fight to protect investors from corporate securities fraud. ISS Securities Class Action Services has ranked Robbins Geller as one of the top law firms in the world in both amount recovered and total number of class action settlements for shareholders every year since 2010. For 2020, the SCAS Top 50 Report ranked Robbins Geller number one for recovering $1.6 billion for investors – more than double the amount recovered by any other plaintiffs‘ firm. As the report noted, Robbins Geller was “the only plaintiff law firm to surpass the $1 billion threshold.”
Robbins Geller is uniquely positioned to uncover and prosecute SPAC-related securities fraud. Robbins Geller hosts an unparalleled stable of top-notch litigators and in-house specialists. In addition, the Firm developed and serves as court-appointed lead counsel in one of the first securities class actions arising from the latest wave of blank check financing, In re Alta Mesa Resources Inc. Sec. Litig., No. 4:19-cv-00957 (S.D. Tex.) – a case alleging defendants knowingly inflated claimed oil reserves prior to a SPAC merger, ultimately leading to a $3.1 billion write down and 99% stock decline. On March 31, 2021, the United States District Court for the Southern District of Texas denied defendants' motions to dismiss in their entirety.
If you have information about a blank check company or SPAC merger, you can confidentially submit this information by emailing attorney Brian E. Cochran at firstname.lastname@example.org. Check below for the latest SPAC-related news and securities class action litigation updates.
SPACs – Blank Checks Rebranded
Blank check companies and similar financing schemes have been around since the 1920s. Blank check financing fell out of favor after facilitating a series of penny-stock scams in the 1980s. Afterwards, regulators and legislators enacted tougher rules designed to protect blank check company investors. However, because of their problematic past, until recently many companies viewed blank check financing as a last resort to raise money. In their current iteration, blank check companies are commonly known as special purpose acquisition vehicles, or “SPACs.”
SPACs – The Blank Check Bonanza
Blank check companies are experiencing an historic resurgence in popularity. In 2019, SPAC IPOs raised $13.6 billion. In 2020, the money raised by SPAC IPOs grew exponentially to over $83 billion – more than the prior ten years combined and more than the entire traditional IPO market. The blank check bonanza has continued to accelerate, with the first three months of 2021 already eclipsing 2020’s record-setting total.
SPACs – A “Blank Check” for Business Acquisitions
Blank check companies get their name from the fact that they have no business or operations at the time of their IPO. Instead, SPAC sponsors use IPO proceeds to acquire a business, often within a specified industry. Because the target business is unknown to investors, the skill, experience, and diligence of the SPAC sponsor is of paramount importance.
SPACs are typically priced at $10 per unit during the initial IPO. SPAC “units” are securities comprised of common stocks and warrants. A warrant gives the holder the right to purchase a certain number of additional shares of common stock in the future at a certain price. The blank check company’s common stock and warrants may also trade separately. SPAC IPO proceeds are held in an interest-bearing trust account.
After a target company is identified, SPAC shareholders vote on the deal. SPAC shareholders can elect to redeem their shares rather than participate in the merger, entitling them to the pro rata amount of funds held in the blank check company’s trust account. If the SPAC deal is approved, the target business reverse merges with the blank check company, allowing it to become publicly traded. If a SPAC sponsor fails to complete a business combination within the allotted time frame (typically 24 months), proceeds from the SPAC IPO are returned to investors.
Proponents of the SPAC structure claim it offers a faster and cheaper route to a public listing for private companies as compared to a traditional IPO. In addition, the ability of SPAC investors to redeem their shares prior to a merger provides initial risk protections with significant potential upside if a deal is viewed favorably by the market.
SPACs – Conflicts Inherent in the Blank Check Form
The structure of blank check companies poses heightened risks to SPAC investors and makes them vulnerable to fraud and abuse. Typically, SPAC sponsors receive a fee of 20% of company shares if the blank check company successfully completes a merger. This fee can be worth hundreds of millions of dollars. But the lucrative 20% SPAC sponsor fee is forfeited if no initial business combination is completed. This, in turn, creates a strong incentive for blank check sponsors to push for SPAC shareholders to approve any merger to ensure their payout, even if the deal is not in the best interests of SPAC shareholders.
Additional conflicts of interest, such as hefty management fees, may also pervade the SPAC deal and provide added incentives for blank check sponsors to misrepresent the business and prospects of the target company. Moreover, less-stringent disclosure requirements apply to bringing the target company public than is the case in a traditional IPO, further jeopardizing a SPAC shareholder’s investment. For example, unlike traditional IPOs where historical financial results are the focus, SPAC sponsors can tout future financial projections in pitching the merger to shareholders. The recent dramatic increase in the number of SPACs searching for merger targets has only increased the pressure to merge with suspect companies.
SPACs – Blank Check Underperformance
Over time, SPACs have tended to significantly underperform the market. From 2015 to July 2020, blank check companies lost 19% on average following a business combination, while traditional IPOs gained 37% during this same time frame. A recent study found that although SPACs initially price at $10 per unit, the median SPAC holds cash of just $6.67 per share by the time of the merger, causing SPAC investors to suffer significant dilution. Roughly 60% of SPACs that acquired businesses between 2016 and 2020 lagged the S&P 500’s performance. And as of late January 2021, about 40% of these SPACs traded below their starting prices.
SPACs – Blank Check Securities Fraud Class Actions
Several recent high-profile blank check company acquisitions have allegedly caused SPAC shareholders to suffer billions of dollars in collective losses because of fraud, mismanagement, and self-dealing. Investors are turning to securities fraud class action litigation to seek redress for these injuries. The following securities class actions have been launched by blank check shareholders in 2022:
- Arqit Quantum Inc. | Class Period: September 7, 2021 to April 18, 2022 and/or all holders of Centricus Acquisition Corp. securities as of the record date for the special meeting of shareholders held on August 31, 2021 to consider approval of the merger between Arqit and Centricus and entitled to vote on the Merger | Lead Plaintiff Deadline: July 5, 2022
The Arqit class action lawsuit alleges that defendants made false and/or misleading statements and/or failed to disclose that: (i) Arqit’s proposed encryption technology would require widespread adoption of new protocols and standards for telecommunications; (ii) British cybersecurity officials questioned the viability of Arqit’s proposed encryption technology in a meeting in 2020; (iii) the British government was not an Arqit customer but, rather, providing grants to Arqit; (iv) Arqit had little more than an early-stage prototype of its encryption system at the time of the Merger; and (v) as a result, defendants’ statements about its business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.
- IronNet, Inc. | Class Period: September 15, 2021 to December 15, 2021 | Lead Plaintiff Deadline: June 21, 2022
The IronNet class action lawsuit alleges that defendants made false and/or misleading statements and/or failed to disclose that: (i) IronNet had materially overstated its business and financial prospects; (ii) IronNet was unable to predict the timing of significant customer opportunities which constituted a substantial portion of its publicly issued FY 2022 financial guidance; (iii) IronNet had not established effective disclosure controls and procedures to reasonably ensure its public disclosures were timely, accurate, complete, and not otherwise misleading; and (iv) as a result, IronNet’s public statements were materially false, misleading, and/or lacked any reasonable basis in fact at all relevant times.
- Bakkt Holdings, Inc. f/k/a VPC Impact Acquisition Holdings | Class Period: March 31, 2021 to November 19, 2021 and Class A common stock pursuant and/or traceable to the Offering Documents issued in connection with the business combination | Lead Plaintiff Deadline: June 21, 2022
The Bakkt class action lawsuit alleges that the Offering Documents issued in connection with the business combination made false and/or misleading statements and/or failed to disclose that: (i) Bakkt overstated its efforts to remediate its defective financial controls; (ii) Bakkt downplayed the true scope and severity of its defective financial controls; (iii) there were additional errors in Bakkt’s financial statements related to the misclassification of certain shares issued prior to the business combination; (iv) accordingly, Bakkt would need to restate certain additional financial statements; and (v) as a result, the Offering Documents were materially false and/or misleading and failed to state information required to be stated therein. The Bakkt class action lawsuit further alleges that defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (i) Bakkt had defective financial controls; (ii) as a result, there were errors in Bakkt’s financial statements related to the misclassification of certain shares issued prior to the business combination; (iii) accordingly, Bakkt would need to restate certain of its financial statements; and (iv) as a result, Bakkt’s public statements were materially false and misleading at all relevant times.
- Li-Cycle Holdings Corp. f/k/a Peridot Acquisition Corp. | Class Period: February 16, 2021 to March 23, 2022 | Lead Plaintiff Deadline: June 21, 2022
The Li-Cycle class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) Li-Cycle’s largest customer, Traxys North America LLC, is not actually a customer, but merely a broker providing working capital financial to Li-Cycle while Traxys tries to sell Li-Cycle’s product to end customers; (ii) Li-Cycle engaged in highly questionable related party transactions; (iii) Li-Cycle’s mark-to-model accounting is vulnerable to abuse and gave a false impression of growth; (iv) a significant portion of Li-Cycle’s reported revenues were derived from simply marking up receivables on products that had not been sold; (v) Li-Cycle’s gross margins have likely been negative since inception; (vi) Li-Cycle will require an additional $1 billion of funding to support its planned growth (which is a figure greater than Li-Cycle raised via the merger); and (vii) as a result, defendants’ public statements were materially false and/or misleading at all relevant times.
- Lilium N.V. f/k/a Qell Acquisition Corp. | Class Period: March 30, 2021 to March 14, 2022 | Lead Plaintiff Deadline: June 17, 2022
The Lilium class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) Lilium materially overstated the Lilium Jet’s design and capabilities; (ii) Lilium materially overstated the likelihood for the Lilium Jet’s timely certification; (iii) Lilium misrepresented its ability to obtain or create the necessary batteries for the Lilium Jet; (iv) the SPAC-merger would not and did not generate enough cash to commercially launch the Lilium Jet; (v) Qell Acquisition Corp. did not engage in proper due diligence regarding the merger; and (vi) as a result, defendants’ public statements and statements to journalists were materially false and/or misleading at all relevant times.
- Playstudios, Inc. | Class Period: June 22, 2021 to March 1, 2022 and holders as of merger record date | Lead Plaintiff Deadline: June 6, 2022
The Playstudios class action lawsuit alleges that Playstudios made misleading statements and omissions regarding the true state of Playstudios’ development of its flagship game Kingdom Boss and about its financial projections and future prospects in the registration statement and proxy statement and subsequent statements. The projections were expressly premised on a successful and timely launch of Kingdom Boss. For example, in the registration statement and proxy statement, Playstudios told investors that “Kingdom Boss, which began development in 2020, will launch as expected in the second half of 2021.” The Playstudios class action lawsuit further alleges that, at the same time the projections of revenue and profits were being publicly made, Playstudios knew that Kingdom Boss had encountered difficulties in its design and implementation that would cause the launch to be substantially delayed.
- Embark Technology, Inc.| Class Period: January 12, 2021 to January 5, 2022| Lead Plaintiff Deadline: May 31, 2022
The Embark class action lawsuit alleges that throughout the Class Period, defendants made materially false and misleading statements regarding Embark’s business, operations, compliance policies, and merger transaction with Embark Trucks Inc., a Delaware corporation (the “Business Combination”). Specifically, the Embark class action lawsuit alleges that defendants made false and/or misleading statements and/or failed to disclose that: (i) Embark had performed inadequate due diligence into Embark Trucks Inc.; (ii) Embark Trucks Inc. and Embark following the Business Combination held no patents and an insignificant amount of test trucks; (iii) accordingly, Embark had overstated its operational and technological capabilities; (iv) as a result of all the foregoing, Embark had overstated the business and financial prospects of Embark post-Business Combination; and (v) as a result, Embark’s public statements were materially false and misleading at all relevant times.
- Volta Inc. | Class Period: August 2, 2021 and March 28, 2022 | Lead Plaintiff Deadline: May 30, 2022
The Volta class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) Volta had improperly accounted for restricted stock units issued in connection with the business combination; (ii) as a result, Volta had understated its net loss for third quarter 2021; (iii) there were material weaknesses in Volta’s internal control over financial reporting that resulted in a material error; (iv) as such, Volta would restate its financial statements; (v) consequently, Volta Industries, Inc.’s (“Legacy Volta”) founders would imminently exit Volta; (vi) thus, Volta’s financial results would be adversely impacted; and (vii) as a result of the foregoing, defendants’ positive statements about Volta’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
- Cano Health, Inc. | Class Period: May 18, 2020 to February 25, 2022 | Lead Plaintiff Deadline: May 17, 2022
The Cano Health class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) Cano Health overstated its due diligence efforts and expertise with respect to acquiring target businesses; (ii) accordingly, Cano Health performed inadequate due diligence into whether Cano Health, post-business combination, could properly account for the timing of revenue recognition as prescribed by ASC 606, particularly with respect to Medicare risk adjustments; (iii) as a result, Cano Health misstated its capitated revenue, direct patient expense, accounts receivable, net of unpaid service provider costs, and accounts payable and accrued expenses; (iv) accordingly, Cano Health was at an increased risk of failing to timely file one or more of its periodic financial reports; and (v) as a result, Cano Health’s public statements were materially false and misleading at all relevant times.
- Grab Holdings Limited | Class Period: November 12, 2021 to March 3, 2022 | Lead Plaintiff Deadline: May 16, 2022
The Grab class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) Grab’s driver supply declined during the third quarter; (ii) as a result, Grab continued to invest heavily in driver and consumer incentives to preemptively recalibrate driver supply; (iii) thus, Grab’s financial results would be adversely impacted, including, among other things, a significant decline in revenue; and (iv) consequently, defendants’ positive statements about Grab’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.