SPAC lawsuits jump in another sign of suspect deal-making for the once red-hot space

Shareholder lawsuits against post-merger special purpose acquisition companies rose to 15 through the first half of 2021, tripling from just five in all of 2020, according to data from Woodruff Sawyer. The jump came even as overall securities cases fell 13% this year, according to the data.

"That's a lot of litigations for one section of the capital markets in a short period of time," said Priya Huskins, partner at Woodruff Sawyer. "SPACs have been marketed as a way to go public faster and easier compared to a traditional IPO, but that might tend to attract companies that are perhaps not ready for public company scrutiny. It is certainly the case the plaintiffs are trying to prove."

These cases are so-called stock-drop litigations when negative announcements lead to a significant decline in share prices. Plaintiffs would argue that the stock price was inflated as the company had made material misstatements or omissions in their earlier public statements.

The SPACs that found themselves in legal battles this year include electric vehicle start-ups Lordstown Motors and Canoo as well as Chamath Palihapitiya-backed Clover Health, all of which are undergoing inquiries by the Securities and Exchange Commission. Churchill Capital Corp IV, Purecycle Technologies, XL Fleet and Quantumscape also got hit by class-action suits.

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