Sue after poorly managed SPAC?
I’m a former employee of a company which recently went public through a SPAC. I had no lockup but communication from the company and setup were extremely poor so I was not able to sell my stock immediately. Accounts weren’t set up in advance. Tax info wasn’t in accounts. It was impossible to sell in the first week for everyone. Most people didn’t get access to shares for weeks. The price went down significantly in that time. Should I sue for some sort of damages? Maybe negligence or fiduciary duty? (Could have even been intentionally but I have no proof.)
Should we sue as a class or individuals? One law firm is interested in the case if class damages are over $10M (they are). My damages are ~$1M which seems to be on the bubble for suing as an individual. Either way, I’m not sure the potential downsides. From past examples I assume the company will make the case very hard for us and try to bleed us dry. Seems like it could also have negative career implications.
SPACs are, in practice, a Hail Mary for companies with little hope of ever going public the traditional way because they’re just not that attractive to real investors. Therefore, if a company goes public via a SPAC, you should assume they’re in a very weak position. So, while you could conceivably sue (and perhaps get a settlement out of them) it’s going to be a pretty poor outcome for you even in the best case scenario.
If you look at buzzfeed for example (if I had to guess, that’s the company you’re with) they’re basically circling the drain and the SPAC was a last ditch effort: if the burned employees of buzzfeed sue them, where’s the money going to come from? Buzzfeed can barely keep the lights on.
If they’re offering to work on contingency, go for it, nothing to lose, but don’t pin your hopes on seeing anything close to your unrealised gains.
If you’re not with buzzfeed, read pieces like this: https://www.nytimes.com/2022/04/25/business/media/buzzfeed-e...
Recommend speaking with the firm willing to take the class action work, as well as having a review with an attorney specializing in securities law (consult cost should be less than $500). They'll (class action firm) work on contingency (typically, so you're not out of pocket, but they will take ~25-35% of whatever is recovered), and are a better gauge at your ability to recover damages than you are. Also, recovering anything is better than recovering nothing. RE career implications, someone will always judge you for something. Don't work for someone who judges you for attempting to protect yourself.
(not an attorney, not your attorney, not legal advice, educational purposes only)
I’m sorry you were hurt by this. SPACs in general are toxic, the vast majority are down from their listing price after 6months. A business going through a spac generally isn’t strong enough to go through the normal IPO process and the SEC has agreed that they’re generally poor for everyone but the bank and investors pushing it and have already started regulating them.
If they will work on contingency, sue them. In the non SPAC world, investors sue all the time when the stock takes a major hit. Here they deprived you of you ability to sell to suckers. If the CEO and others got to sell at opening price - sue them for everything you can think of
I like the quote from the movie Heat: “He knew the risks, he didn’t have to be there. It rains you get wet.”
SPACs are a high risk way of going public and nothing is guaranteed.
You could certainly sue, it might takes years and money from your pocket to get a judgement you’ll never collect a dime on, but yeah, you can sue.
For comparison, I worked for Spotify and had shares when they direct-listed. First, they transferred shares from their ledger to Computershare (they were fine, but the website felt like it was made 15 years ago). From there, Spotify had an arrangement with Morgan Stanley to transfer the shares to their books. I was able to trade on the first day, but it had to be broker-assisted (they charge $120). Once the shares were with MS, it was easy enough to transfer them out to a discount brokerage.
The whole process was fine-ish, but I had to read things carefully, and I wasn't thrilled with fees from MS, but the process for transferring shares anywhere else was more complicated. Remember that these are unlisted shares, so transferring them is weird.
You selling immediately when they launch would have been the opposite of what they wanted to achieve. Which is lots of buyers pushing the price up.
I haven’t seen a single SPAC do well after a week though. They all drop like flies. There’s a reason why they don’t go through IPO.
Not as a criticism of the OP, but assuming there's no lockup, wouldn't it make sense to buy put / sell "covered" call options as "insurance" on the price. Of course that comes with a premium, but I wonder what it would have been at the "opening" price.
I have no idea about your odds of winning or whether it is worth the hassle… BUT, I doubt that suing will make much difference in your career. A lot of hiring managers won’t google you. Those that do may not care. I’m not saying NO ONE will care but my hunch is that most won’t.
> I had no lockup but communication from the company and setup were extremely poor so I was not able to sell my stock immediately.
yikes. this is not a good look. maybe it will turn out that you actually dodged a bullet here.
If you've already talked to a lawyer about it, there's probably not much we can tell you that will be more useful than that.
The downside is you will waste a lot of time and money and will ultimately accomplish nothing. Not what you want to hear but it’s the truth.
SPACs are mostly scams and most have done very poorly. You got caught up in one, reap what you sow.