Savvy investors know that risk is a factor when you make an investment. But when the people behind an investment lie, withhold important information, or otherwise break securities law, that’s no ordinary investment failure—it’s fraud. And unfortunately, one of the trendiest investment structures of recent years, SPACs, comes pre-loaded with opportunities for the investment’s organizers and sponsors to defraud investors by controlling not only the information they provide, but also what company they ultimately invest in.
Since SPACs—short for special purpose acquisition companies—are investment vehicles for many shareholders at once, fraud with SPACs generally victimizes many people at once. In this kind of case, those investors may choose to sue the perpetrators of the fraud in a class-action lawsuit, which brings together many people who have the same grievance against the same perpetrator.
SPAC Fraud Attorneys
SPAC frauds lend itself to class actions simply because of how the investment is structured. In a SPAC, many shareholders invest at the IPO stage in a shell company that was formed only to acquire another company. Once that company, which is generally not chosen when the IPO is offered, is purchased, SPAC shareholders can choose to cash out or become shareholders of the combined company. If the company’s stock reaches a high value, they can make a profit.
However, SPAC shareholders can also lose money if the company loses value, or never had any value to begin with. Sometimes, this loss is due to the normal ups and downs of the market.
However, losses may come from fraud if:
The SPAC sponsors invested in a low-value or valueless company without checking it carefully enough
The SPAC sponsors defrauded shareholders by intentionally investing in a company they knew had no long-term value
Shareholders’ shares have been diluted by self-dealing from SPAC sponsors
A class action could be appropriate in any of these situations because the shareholders who are not SPAC sponsors are all in the same position. That is, they’ve all suffered similar losses due to the same behavior from the same defendants. By suing as a class, the shareholders can pool their resources, making it less expensive and enabling them to pursue claims that might otherwise be too small.
