SPAC Litigation & Risk Management

Mintz's latest report analyzes SPAC data provided by PitchBook and investigates the drivers of this surge along with the implications for capital markets and private companies on the whole. It also considers the key risks and opportunities inherent to SPACs due to their features and how these financing vehicles could evolve.

In 2020, SPAC IPOs outpaced traditional IPOs in both total number of offerings and collective capital raised; and 2021 is on track to surpass those numbers. As a result, investors, executives, and financial institutions are becoming increasingly wary of a potential wave of litigation, given the challenges posed by SPACs’ unique structure and liabilities. The following considerations are intended to help clients mitigate risk as they navigate this complex and uncharted market.

While coronavirus (COVID-19) temporarily halted the steady rise in shareholder disputes seen in recent years, shareholders still found time to files a range of claims, including allegations of a lack of diversity among boards of directors and senior management, as well as new categories of event-drive, pandemic-related litigation. However, as the situation slowly improves, many expect to see an uptick in the volume of both shareholder activism and litigation in 2021 and beyond, as parties adjust to the post-COVID-19 landscape.

Mintz Members Adam Sisitsky, Nancy Adams, Jack Sylvia and Of Counsel, Kristen White discuss the rising risk of litigation and regulatory enforcement facing SPACs and the individuals that lead them. Topics will included the current SPAC litigation landscape, SPAC M&A–related litigation, including disclosure issues and breach of fiduciary duty in the de-SPAC process, D&O coverage challenges and risk mitigation and heightened SEC scrutiny.

It seems that everyone is taking a second look at SPACs as the number of lawsuits against these alternative IPOs continues to increase by the day.

On March 31, the Securities and Exchange Commission’s Division of Corporation Finance published a staff statement which outlines accounting, financial reporting, and governance issues that private companies should consider before completing a SPAC transaction. The statement is relevant in that it represents the SEC’s first public statement on the advance planning steps it recommends private companies undertake before weighing whether to go public via a combination transaction with a SPAC.