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 2021:
- Virgin Galactic Holdings, Inc. | Class Period: October 26, 2019 to April 30, 2021 | Lead Plaintiff Deadline: July 27, 2021
The Virgin Galactic class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (i) for accounting purposes, Social Capital Hedosophia Holdings Corp.’s (“SCH”) warrants were required to be treated as liabilities rather than equities; (ii) Virgin Galactic had deficient disclosure controls and procedures and internal control over financial reporting; (iii) consequently, Virgin Galactic improperly accounted for SCH warrants that were outstanding at the time of the business combination; and (iv) as a result, Virgin Galactic’s public statements were materially false and misleading at all relevant times.
- PureCycle Technologies, Inc. | Class Period: November 16, 2020 and May 5, 2021 | Lead Plaintiff Deadline: July 12, 2021
The PureCycle class action lawsuit alleges that, throughout the Class Period, defendants made false and misleading statements and failed to disclose that: (a) the management team bringing PureCycle public had previously brought six other failed business public only to have each implode thereafter; (b) the management team bringing PureCycle public had characterized rank speculation as financial projections to investors in the past; (c) the primary motivation of the management team bringing PureCycle public was to complete any transaction, good or bad, to obtain tens of millions of dollars in cash and tradable shares; (d) PureCycle faces higher competition for high quality feedstock than it has led investors to believe, materially undermining the management team’s financial projections; (e) PureCycle’s patent is nowhere as cogent or valuable as it has led investors to believe, and the technology underlying its business operations is unproven and presents serious issues even at lab scale; (f) in reality, PureCycle’s flammable pressurized process is not yet functional, especially at scale, and is dangerous; (g) PureCycle purports to be advancing to commercial production scale despite still having operational issues at a lab scale; and (h) as a result, defendants’ positive statements during the Class Period about PureCycle’s business performance, financial and operational metrics, and financial prospects were false and misleading and/or lacked a reasonable basis.
- Skillz Inc. f/k/a Flying Eagle Acquisition Corp.| Class Period: December 16, 2020 to April 19, 2021 | Lead Plaintiff Deadline: July 7, 2021
The Skillz class action lawsuit alleges that, throughout the Class Period, defendants issued materially misleading statements and omissions including representations relating to certain of Skillz’s business operations, performance metrics, and ultimate valuation, including, among others: (i) Skillz’s ability to attract new end-users, (ii) future profitability, (iii) the shrinking popularity of Skillz’s hosted games that accounted for 88% of its revenue, and (iv) Skillz’s valuation. The Skillz class action lawsuit also alleges that one of Skillz’s objectively unrealistic promises included the unsupportable claim that Skillz was valued at $3.5 billion, based on revenue projections in excess of $550 million for 2022. However, Skillz allegedly failed to inform investors that downloads of games accounting for a majority share of Skillz’s revenue had been declining since at least November 2020.
- Churchill Capital Corporation IV | Class Period: January 11, 2021 to February 22, 2021
On February 22, 2021, the long anticipated merger agreement between Churchill Capital IV and Lucid Motors Inc. was announced. Churchill Capital IV and Lucid’s transaction equity value was estimated at $11.75 billion. Churchill Capital IV’s share price closed that day at $57.37. Later on February 22, 2021, Bloomberg News reported that Lucid CEO announced that production of its debut car would be delayed until at least the second half of 2021, with no definite date for set for actual delivery of an actual vehicle. On this news, the price of Churchill Capital stock fell by approximately 38%, damaging investors.
- Romeo Power Inc.| Class Period: October 5, 2020 to March 30, 2021 | Lead Plaintiff Deadline: June 15, 2021
The Romeo Power class action lawsuit alleges that, throughout the Class Period, Romeo Power was suffering from an acute shortage of high quality battery cells, which are key raw materials for Romeo Power’s battery packs and modules, due to supply constraints. Specifically, according to the Romeo Power class action lawsuit, contrary to defendants’ representations: (i) Romeo Power had only two battery cell suppliers, not four; (ii) the future potential risks that defendants warned of concerning supply disruption or shortage had already occurred and were already negatively affecting Romeo Power’s business, operations, and prospects; (iii) Romeo Power did not have the battery cell inventory to accommodate end-user demand and ramp up production in 2021; (iv) Romeo Power’s supply constraint was a material hindrance to Romeo Power’s revenue growth; and (v) Romeo Power’s supply chain for battery cells was not hedged, but in fact, was totally at risk and beholden to just two battery cell suppliers and the spot market for their 2021 inventory. The Romeo Power class action lawsuit further alleges that given the supply constraint that Romeo Power was experiencing during the Class Period, defendants had no reasonable basis to represent that Romeo Power had the ability to meet customer demand and that it would support growth in revenue in 2021.
- Canoo Inc. | Class Period: August 18, 2020 to March 29, 2021 | Lead Plaintiff Deadline: June 1, 2021
The Canoo class action lawsuit alleges that, throughout the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (i) Canoo had decreased its focus on its plan to sell vehicles to consumers through a subscription model; (ii) Canoo would deemphasize its engineering services business; (iii) contrary to prior statements, Canoo did not have partnerships with original equipment manufacturers and no longer engaged in the previously-announced partnership with Hyundai; and (iv) as a result of the foregoing, defendants’ positive statements about Canoo’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
- Lordstown Motors Corp. | Class Period: August 3, 2020 to March 24, 2021 | Lead Plaintiff Deadline: May 17, 2021
The Lordstown Motors class action lawsuit alleges that, throughout the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (i) Lordstown Motors’ purported pre-orders were in fact non-binding; (ii) many of the would-be customers who made these purported pre-orders lacked the means to make such purchases; (iii) Lordstown Motors is not and has not been “on track” to commence production of the Endurance in September 2021; (iv) the first test run of the Endurance led to the vehicle bursting into flames within ten minutes; and (v) as a result, Lordstown Motors’ public statements were materially false and misleading at all relevant times.
- XL Fleet Corp. | Class Period: October 2, 2020 to March 2, 2021 | Lead Plaintiff Deadline: May 7, 2021
The XL Fleet class action lawsuit alleges that, throughout the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (i) XL Fleet’s salespeople were pressured to inflate their sales pipelines to boost XL Fleet’s reported sales and backlog; (ii) at least 18 of the 33 customers that XL Fleet featured were inactive and had not placed an order since 2019; (iii) XL Fleet’s technology had been materially overstated and offered only 5% to 10% of fleet savings; (iv) XL Fleet lacked the supply chain and engineers to roll out new products on the announced timelines; and (v) as a result of the foregoing, defendants’ positive statements about XL Fleet’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
- Velodyne Lidar, Inc. | Class Period: July 2, 2020 to March 17, 2021 | Lead Plaintiff Deadline: May 1, 2021
The Velodyne class action lawsuit alleges that, throughout the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (i) Velodyne’s iconic founder and Chairman, David Hall, was battling with Velodyne executives for control of Velodyne; (ii) Velodyne was losing major customer contracts; (iii) Velodyne was not on track to achieve its stated guidance and such guidance lacked a reasonable basis in fact; and (iv) Velodyne’s internal controls over financial reporting suffered from multiple material weaknesses.
- Immunovant, Inc. | Class Period: October 2, 2019 to February 1, 2021 | Lead Plaintiff Deadline: April 20, 2021
The Immunovant class action lawsuit alleges that, throughout the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (i) Health Sciences Acquisitions Corporation had performed inadequate due diligence into legacy Immunovant prior to the merger, and/or ignored or failed to disclose safety issues associated with IMVT-1401; (ii) IMVT-1401 was less safe than Immunovant had led investors to believe, particularly with respect to treating thyroid eye disease and warm autoimmune hemolytic anemia; (iii) the foregoing foreseeably diminished IMVT-1401’s prospects for regulatory approval, commercial viability, and profitability; and (iv) as a result, Immunovant’s public statements were materially false and misleading at all relevant times.
- Clover Health Investments, Corp. | Class Period: October 6, 2020 to February 3, 2021 | Lead Plaintiff Deadline: April 9, 2021
The Clover Health class action lawsuit alleges that Clover Health’s statements throughout the Class Period omitted facts required to make its other statements not misleading and failed to comply with Items 303 and 503 of Regulation S-K. Specifically, defendants allegedly failed to disclose that Clover Health was subject to an ongoing investigation by the U.S. Department of Justice into Clover Health’s software “Clover Assistant” purportedly designed to serve “low-income and often overlooked communities,” as well as improper kickbacks, marketing practices, and undisclosed third-party deals.