Special Purpose Acquisition Companies (SPACs) have been gaining traction during the past 18 months, although more recently they have come under the spotlight for more negative reasons. Following high-profile litigation associated with certain de-SPAC deals and statements from the Securities and Exchange Commission (SEC), many investors are now starting to question SPACs as an investment vehicle of choice.

At a recent event hosted by Latham & Watkins and FTI Consulting, panelists took a deep dive into the potential litigation risks associated with SPACs, and explored the mitigation measures investors and target companies should consider before pursuing a SPAC or de-SPAC deal.

This post offers five key takeaways from the panelists’ discussion:

1. Beware SPAC Litigation is On the Rise

There has been a surge in SPAC litigation since 2020. According to recent data, the number of SPAC class actions has doubled from seven filings throughout 2020, to 14 filings from January 2021 through May 2021 [1]— and the trend continues.

The risks vary throughout the stages of the SPAC lifecycle, with common litigation scrutiny focused around breach of fiduciary duty, claims of material misstatements or omissions in proxy statements, and disclosure shortcomings, particularly in de-SPAC transactions.

There is also increased regulatory scrutiny, with the SEC averaging approximately 480 enforcement actions per year during the past five years.

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