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Packing the SPAC divorce court

Lucinda Shen
Apr 15, 2022
Illustration of a stop sign with SPAC written on it
Illustration: Annelise Capossela/Axios

The collapsing confidence in SPACs is setting the stage for the innovation's next phase: the legal mess.

Driving the news: Last week, blank check company Dune Acquisition Corp. filed a lawsuit against TradeZero, a stock-trading fintech. The suit alleges that TradeZero defrauded Dune into buying it.

Why it matters: As the landscape for SPACs darkens, more lawsuits are certain to come. This recent case provides just one model of how a SPAC merger can peter out.

Background: In October, Dune agreed to acquire TradeZero in a deal valuing it at about $556 million.

  • The duo put out a press release saying TradeZero's gross margins would exceed 80% for 2021, 2022, and 2023.

Yes, but: Dune says that TradeZero failed to provide audited financials in a timely manner — a breach of contractual obligations — and also alleges TradeZero knowingly provided false projections.

  • Dune further alleges that TradeZero dragged its feet and is waiting for the deal's expiration date on July 12, 2022.
  • Dune declined to comment on the deal while a TradeZero representative says the company "strongly" disagrees with the allegations in the complaint.  "We will vigorously defend all of the allegations made by Dune."

Context: The suit comes amid heavy scrutiny over how SPACs are using projections. The SEC recently proposed a rule to allow investors to sue SPACs for misleading projections.

State of play: SPACs promised to be an innovative new path to going public through these agreements. Now stakeholders are exploring a multitude of creative paths out of them.

  • Alleging that it had breached fiduciary duties, shareholders sued Churchill Capital Corp. III in Delaware court over its acquisition of Multiplan Corp.
  • Bill Ackman's SPAC, meanwhile, is also facing a lawsuit arguing it should be regulated more onerously, as an investment company.
  • "There was a period when people struggled to understand how to litigate the product," David Ni, a partner at Sidley Austin, tells Lucinda, noting that some of the SPACs protective features historically made it difficult to sue. Now "the litigation has become more focused."

The bottom line: With the general SPAC market souring, more lawsuits are certain to pack the SPAC divorce court.

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