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Special Purpose Acquisition Companies (“SPACs”) are an increasingly popular way for private companies to go public without going through a traditional initial public offering (“IPO”). SPACs are essentially “blank-check” companies formed by private investors, or sponsors, with no operations or assets. Once formed, the SPAC endeavors to raise funds through an IPO and ultimately, merge with, or acquire an existing privately held company. Although SPACs have been around for decades, it's only recently that their popularity has taken off.
In 2020 alone, SPACs raised nearly $70 billion dollars on public markets, compared to $13.6 billion in 20191, dwarfing the $3.6 billion raised in 2016.2 The current high demand for SPACs is encouraging financial and business executives to continue sponsoring their own—creating the expectation that SPACs will continue to have a strong presence in the securities industry moving forward into 2021. While SPACs may have a relatively easier time meeting disclosure requirements as part of its IPO, they are not immune to challenges under federal securities law, in particular, Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. At Broadridge, we anticipate an increase in shareholder litigation in this area as SPACs continue to grow in popularity. In fact, since 2019 we have seen no fewer than 10 securities fraud class actions filed involving SPACs listed on the New York Stock Exchange and NASDAQ.
Presently, the case garnering the most attention in this area would have to be the Nikola case. In that case, VectoIQ Acquisition merged with electric truck maker Nikola through a SPAC transaction valued at over $3.3 billion. Shortly after, Nikola was accused of fraud and caused shares to plummet 30%.3 In what can only be referred to as an unusually contentious battle involving six competing motions to be appointed lead plaintiff – an individual investor was named as lead plaintiff on December 15, 2020. See Borteanu v. Nikola Corp., No. CV-20-01797-PHX-SPL, Order (D. Ariz.).
The developing Nikola case is just one of the countless examples of the growing relevance of SPACs in the securities industry. While there is no immediate change of which you need to be aware, the Broadridge team will continue to monitor developments to maximize your opportunities.
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