Silver Law Investigating Multiple SPAC Companies

In the world of business, one of the most important pieces of getting started is raising capital. Most people have heard of an initial public offering, or IPO, but that’s not the only way a company can do its fund raising.

One increasingly popular option is called Special Purpose Acquisition Company, or SPAC. It’s also known as a “blank check company,” because once it raises enough funds, it merges with a second company. The SPAC has no commercial operations and exists only for capital fundraising.

SPACs are normally started by hedge funds, groups of institutional investors, or private equity firms. These companies go through an IPO to raise the needed funds a merger or acquisition with a company to be identified later. Once the SPAC raises enough capital, it begins the merger process. At that point, investors can choose between becoming shareholders in the new company or redeem their shares for cash.

Why They’re Popular

SPACs have been growing in popularity in recent years. More than $80 billion was raised in 2020 and more than $160 billion in 2021 for SPACs companies.

A SPAC is easier because a company can go public without the time, expense, and regulatory requirements of a traditional IPO. Investors like them because they’re easy to get into and can lead to a substantial gain. Boosted by high-profile people such as sports figures and celebrities, they seem to be a legitimate and ideal investment. Because the acquired company’s debt can be paid down quickly, many believe that there is rest less risk involved.

However, SPACs do carry risk, primarily because they are less regulated. There is no way to know what company the sponsors will purchase, leaving investors without anything. Additionally, a SPAC’s structure means that the sponsors don’t need to do as much due diligence. The “blank check company” can become a public company without the usual SEC regulations which exist to protect investors. The potential for fraud can be higher than one would expect.

When the time comes to merge, the SPAC’s investors don’t know what company the sponsors will purchase with the new capital. It could be a well-established company, or one that’s on shaky ground. In either case, the sponsors will make money. But the investors may still lose, especially if the purchased company takes a downturn following the merger. The SEC has issued multiple bulletins on SPAC investments, beginning in 2021. The most recent press release came on March 30, 2022.

SPAC Lawsuits

Inevitably, legal action follows many securities activities, and SPACs are no exception. The most common are:

Merger objection lawsuits, when a plaintiff files a lawsuit claiming that the merger should not proceed. These are usually due to inadequate disclosures, and additional disclosures generally see the suit dismissed.
Securities Class Actions, most frequently filed prior to the merger, although some are filed after. These suits usually involve omissions or misstatements in public statements about the company.
Breach of Fiduciary Duty suits, in which the plaintiffs argue that the structure of the SPAC leads to a conflict of interest between the sponsor, the board, and the investors.
Shareholder Derivative suits, usually filed after there is already a securities class action. They involve false statements from the SPAC’s directors and officers that damages the SPAC’s reputation and include severe breaches of fiduciary duties.
“Thou Art An Investment Company” suit, where SPACs that aren’t registered as investment companies, as one might think, but actually should be. In August of 2021, this type of shareholder derivative suit was filed against Bill Ackman’s Pershing Square Tontine. The plaintiffs allege that SPACs are investment companies and should register as such under the Investment Company Act of 1940.
Shareholder Voting Suits, in which correct voting protocol is not followed in the process of a merger.

As SPACs continue to evolve, lawsuits and other legal actions are likely to increase as companies refine their processes.

Silver Law Investigates SPACs

Silver Law is investigating some of the SPACs that have recently completed mergers:

Gores Holdings III (TICKERs: GRSH, GRSHU, and GRSHW) de-SPAC merger with PAE Incorp (TICKER: PAE). Merger date February 10, 2020.
Hudson Executive Investment Corp (TICKERs: HEC, HECCU, HECCW) de-SPAC merger with Talkspace (Post-merger TICKER: TALK). Merger date was June 17, 2021.
AMCI Acquisition Corp (TICKER: AMCI) de-SPAC merger with Advent Technologies Holdings (Post-merger TICKER: ADN). Merger Date was Feb. 2, 2021.
FinServ Acquisition Corp. (TICKER: FSRV) de-SPAC merger on June 9, 2021, with Katapult Holdings, Inc. (TICKER: KPLT, KPLTW).
Northern Star Acquisition Corp. (TICKER: STIC) de-SPAC merger date was June 1, 2021, w/ Barkbox, Inc. (Ticker: BARK, BARK WS).
Forest Road Acquisition Corp. (TICKER: FRX) de-SPAC merger date was June 25, 2021, with The BeachBody Company, Inc. (TICKER: BODY).
GigCapital4 (TICKERS: GIGGU, GIG, GIGGW) de-SPAC merger date was December 3, 2021, merged with BigBear.ai Holdings, Inc. (TICKER: BBAI, BBAI.WS).
dMY Tech Group IV (TICKERS: DMYQ) de-SPAC merger to create Planet Labs (NYSE: PL) closed on Dec 8, 2021.
Forum Merger III Corp. (Nasdaq: FIII, FIIIU, FIIIW) de-SPAC merger on June 24, 2021 and converted to Electric Last Mile Solutions, Inc. (ELMS, ELMSW)
Longview Acquisition Corp. (TICKER: LGVW.U, LGVW, LGVW WS) de-SPAC merger on February 12, 2021, with Butterfly Network, Inc. (TICKER: BFLY)
Northern Genesis Acquisition Corp. (TICKER: NGA, NGA.U, NGA WS) de-SPAC merger on April 23, 2021, with Lion Electric Inc. (TICKER: LEV)
Northern Genesis Acquisition Corp. II (TICKER: NGAB, NGAB.U, NGAB WS) de-SPAC merger on November 10, 2021, with Embark Trucks, Inc. (TICKER: EMBK)
FTAC Olympus Acquisition Corp. (TICKER: FTOC, FTOC.U) de-SPAC merger on June 23, 2021, with Payoneer Global, Inc. (TICKER: PAYO, PAYO.W).
Osprey Technology Acquisition Corporation (TICKERS: SFTW, SFTW.U, SFTW.WS) de-SPAC merger with BlackSky Holdings, Inc. (TICKER: BKSY) closing on September 10, 2021.
Flying Eagle Acquisition Corporation (TICKERS: FEAC, FEAC.U, FEAC WS) de-SPAC merger with Skillz, Inc. (TICKER: SKLZ, SKLZW) closing on 12-16-2020
Schultze Special Purpose Acquisition Corporation (TICKER: SAMA, SAMAU, SAMAW), de-SPAC merger with Clever Leaves International, Inc. (TICKER: CLVR, CLVRW) on 12-18-2020
Riley Principal Merger Corporation II (TICKERS: BMRG, BMRG.U, BMRG WS) de-SPAC merger with EOS Energy Storage, Inc. (TICKER: EOSE, EOSEW) on 11-16-2020

If you are involved with a SPAC or have questions about one, we’re happy to discuss them with you.

Many SPACs do just what they’re created to do—raise capital for an existing company. But because they can be misused, investors are always encouraged to spend time with due diligence before putting money in any type of investment, including SPACs.

Fraud and SPACs

If you have evidence that the people behind a SPAC are violating securities laws, you should call Silver Law Group. We represent investors who have been defrauded, as well as whistleblowers who have information about lawbreaking to bring to the SEC. We can help you recoup an investment that failed because of securities or investment fraud rather than market conditions, or help you earn money while bringing lawbreakers to justice. For a free consultation, call us today at (800) 975-4345 or send us a message online.