Summary findings of SPAC—related federal securities litigation filed between January 2019 and April 2022.
While SPAC offerings may have cooled, the litigation has yet to heat up
The following report provides an analysis of the exponential increase in SPAC IPOs, and the litigation that has followed, during the period of between January 2019 and April 2022 (Relevant Period). Highlights from our findings include:
- Newly proposed regulation may have paused SPAC IPOs, but the litigation continues.
- 977 SPAC IPOs took place during the Relevant Period, with the bulk of those occurring in 2021 (613).
- 61 federal securities actions were filed by investors during the Relevant Period, with the bulk of those occurring in 2021 (33).
- Over 85% of the actions remain active and are expected to take several more years to resolve.
- While offerings have tapered, litigation related to the 977 SPAC IPOs during the Relevant Period may continue to grow over the next few years.
- Most of the SPACs subject to federal securities litigation are small cap companies.
- Few mega-settlements are expected. Estimated class-wide damages for many actions do not exceed $200 million, suggesting relatively limited recoveries for cases that settle.
A substantial number of private shareholder actions, mainly securities fraud class actions, have been filed against Special Purpose Acquisition Companies (SPAC) and related parties in recent years. The rise in litigation has followed the exponential increase in SPAC entities becoming publicly traded via acquisitions, offerings and/or a de-SPAC merger process (SPAC IPOs). However, recent events have caused a dramatic decline in the number of SPAC entities attempting to become publicly traded. A major factor contributing to the drop has been the Securities Exchange Commission (SEC) sending strong signals that stricter regulations will be imposed on the entities and parties involved in the SPAC IPO process.