Litigation Risks and Insurance Issues for SPAC Sponsors
Over the past two years, special purpose acquisition companies (“SPACs”) have become a popular means of taking private companies public. SPACs accounted for 247 public listings in 2020 (52% of all initial public offerings (“IPOs”) for that year) and 613 in 2021 (59% of all IPOs that year).[i] While the SPAC craze has cooled somewhat in recent months, SPACs are likely to account for a significant number of public listings in 2022 as well.
As one would expect, the eruption in SPAC transactions over the last two years has given rise to a corresponding uptick in SPAC-related lawsuits. These include securities class actions, shareholder derivative lawsuits, and breach of fiduciary duty actions. SPACs have also been in the crosshairs of the SEC.
This article analyzes SPAC-related litigation and regulatory risks from the perspective of the private equity firms that increasingly sponsor SPACs, as well as the insurance coverage implications associated with such risks.