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Securities Litigation Insider is a source of insights, information, and analysis on a wide range of topics relevant to securities litigation, with a focus on notable developments in the securities space, including U.S. Securities and Exchange Commission (SEC) enforcement, rulemaking, and other regulatory trends and development. Patterson Belknap’s Securities Litigation team has extensive experience handling highly complex lawsuits and internal investigations. Our blog team includes experienced litigators and corporate advisors, and is led by a former senior counsel for the SEC Division of Enforcement with extensive experience investigating and litigating securities laws violations, providing a unique, interdisciplinary perspective on securities law.

Delaware Court Holds that SPAC Sponsor’s “Founder Shares” Created a Conflict of Interest with Public Stockholders

In 2021, there were 613 initial public offerings (“IPOs”) of Special Purpose Acquisition Companies (“SPACs”), after 248 SPACs went public in 2020 and 59 in 2019.[1]  Prior to 2021, there had not been more than 500 IPOs of any kind in one year in the U.S. markets since the 1990s.[2]  The SPAC explosion has led, inevitably, to litigation; often similar to the squabbles over disclosures, contracts, and failed negotiations that are standard in litigation surrounding IPOs and mergers.  However, in a ruling in January, a Delaware Court of Chancery judge cast doubt on whether decisions by SPAC boards of directors to merge with private companies are entitled to the deference of the business judgment rule, which shields directors from liability for their decisions gone wrong.[3] 

[3] “Under the business judgment rule, the judgment of a properly functioning board will not be second-guessed and absent an abuse of discretion, that judgment will be respected by the courts.”  In re KKR Fin. Holdings LLC S'holder Litig., 101 A.3d 980, 989 (Del. Ch. 2014) aff’d Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 305 (Del. 2015) (quotations and alterations adopted).