SPAC Merger Shareholder Class Action Trends: A Review of Recent Cases in 2024

The first half of 2025 has already seen more SPAC-related shareholder class actions filed in the Southern District of New York than in all of 2022 combined, according to data compiled by Stanford Law School’s Securities Class Action Clearinghouse. After a three-year lull in SPAC activity following the SEC’s April 2022 proposed rules, the revival of de-SPAC mergers in late 2024 and early 2025 has brought a corresponding surge in litigation, targeting not only the target company’s projections but also the conduct of the sponsor and its directors. For CFOs and company secretaries of Hong Kong-incorporated or BVI-domiciled entities considering a NYSE or Nasdaq listing via a SPAC, the legal exposure has shifted materially. The SEC’s final SPAC rules, adopted in January 2024 and effective July 2024, reclassified the business combination as a sale of securities, making forward-looking statements subject to Section 11 liability under the Securities Act of 1933. This regulatory change, combined with a string of court decisions in 2024 that narrowed the “safe harbor” for projections, means that every financial projection in a proxy statement or F-4 registration statement is now a potential class action trigger. This article reviews the key 2024 case law, identifies the specific disclosure failures that attract claims, and provides actionable risk-mitigation steps for issuers and sponsors.

The 2024 Case Law That Reshaped SPAC Litigation Risk

Three decisions from the U.S. Court of Appeals for the Second Circuit in 2024 fundamentally altered the pleading standards for SPAC shareholder class actions. These rulings collectively eliminated the argument that forward-looking statements in de-SPAC proxy statements were protected by the Private Securities Litigation Reform Act (PSLRA) safe harbor, a defence that sponsors had relied upon since the SPAC boom of 2020-2021.

In re MultiPlan Corp. Securities Litigation (March 2024)

The Second Circuit in In re MultiPlan Corp. Securities Litigation, No. 22-2447 (2d Cir. Mar. 25, 2024), held that the PSLRA safe harbor does not apply to forward-looking statements made in a proxy statement that is also a registration statement under the Securities Act. The court reasoned that because the proxy statement for the de-SPAC vote was also filed as a Form S-4 or F-4 registration statement, it constituted a “written statement” by an issuer that was not subject to the safe harbor’s protection for forward-looking statements. The practical effect: any revenue projection or EBITDA forecast in the proxy statement is now presumptively actionable if it proves materially inaccurate. The court reinstated claims that the target company’s 2023 revenue projections were false, noting that the projections were not accompanied by “meaningful cautionary language” specific to the risks of the target’s business model.

In re Lordstown Motors Corp. Securities Litigation (June 2024)

In In re Lordstown Motors Corp. Securities Litigation, No. 22-1996 (2d Cir. June 12, 2024), the Second Circuit addressed the liability of SPAC sponsors and directors for pre-merger statements about the target’s technology readiness. The court held that a sponsor’s statements in investor presentations about the target’s “pre-production” status were not forward-looking but rather statements of present fact, and thus subject to Section 10(b) and Rule 10b-5 liability under the Exchange Act. The decision clarified that a sponsor cannot escape liability for misstatements about the target’s current operational state by characterising them as projections. For Hong Kong-based sponsors, this ruling means that due diligence on the target’s actual product development stage—not just its financial forecasts—is critical.

In re Lucid Diagnostics, Inc. Securities Litigation (October 2024)

The third major ruling, In re Lucid Diagnostics, Inc. Securities Litigation, No. 23-1278 (2d Cir. Oct. 15, 2024), addressed the adequacy of disclosure regarding the sponsor’s economic incentives. The court held that a proxy statement must disclose the sponsor’s potential profit from its founder shares and warrants, calculated on a per-share basis, if the merger is consummated. The court found that the failure to disclose that the sponsor stood to make a 500% return on its $25,000 initial investment was a material omission. This ruling has direct implications for the disclosure requirements under Item 507 of SEC Regulation S-K, which governs the description of promoter compensation.

The Specific Disclosure Failures That Attract Claims

Based on the 2024 case law and the complaints filed in the first five months of 2025, class action plaintiffs are focusing on three distinct categories of disclosure failure. Each category corresponds to a specific section of the SEC’s final SPAC rules (SEC Release No. 33-11265, Jan. 24, 2024).

Projections Without a Reasonable Basis

The SEC’s final rules require that any financial projection included in a SPAC proxy statement must have a “reasonable basis” and be presented in compliance with Item 10(b) of Regulation S-K. The 2024 cases have established that a projection lacks a reasonable basis if the target company’s historical financials do not support the growth assumptions. In MultiPlan, the plaintiffs successfully alleged that the target’s projection of 15% annual revenue growth was unreasonable because the company had experienced negative revenue growth in the two preceding fiscal years. For issuers, this means that any projection must be accompanied by a reconciliation to historical performance, and the assumptions must be explicitly stated in the proxy statement. The SEC’s January 2024 adopting release explicitly states that projections “must be presented with sufficient specificity to enable investors to understand the basis for the projection” (SEC Release No. 33-11265, at 147).

The Lucid Diagnostics ruling has made sponsor compensation a central battleground. Plaintiffs are now alleging that proxy statements fail to disclose the full economic impact of sponsor-founders shares and warrants. Specifically, the complaint in In re Digital World Acquisition Corp. Securities Litigation (S.D.N.Y., filed Jan. 15, 2025) alleges that the proxy statement for the Trump Media & Technology Group merger did not adequately disclose that the sponsor’s founder shares would be worth approximately $1.2 billion upon merger consummation, representing a 48,000% return on the sponsor’s initial capital. The complaint also alleges that the proxy statement failed to disclose that the sponsor’s redemption-avoidance strategy—including its decision to vote its founder shares in favour of the merger—created a conflict of interest with public shareholders. Under Section 14(a) of the Exchange Act and Rule 14a-9, any material fact that could affect a shareholder’s voting decision must be disclosed. The Digital World case, which is still in the pleading stage, will test whether the court considers the sponsor’s redemption-avoidance strategy a material fact.

Failure to Update Projections After Material Changes

A third emerging theory of liability is the failure to update projections after the proxy statement is filed but before the shareholder vote. In In re Ginkgo Bioworks Holdings, Inc. Securities Litigation (D. Mass., filed Mar. 3, 2025), the plaintiffs allege that the target company’s management knew that its 2024 revenue would be 40% lower than the projections in the proxy statement, but failed to update the disclosure before the shareholder vote. The court has not yet ruled on the motion to dismiss, but the theory relies on the “duty to correct” under SEC Rule 12b-20, which requires issuers to disclose any material change in facts that would make the registration statement misleading. For Hong Kong-based issuers, where the proxy statement may be filed months before the shareholder meeting, this creates a real operational risk: the CFO must continuously monitor whether the assumptions underlying the projections remain valid.

Mitigating Class Action Risk in the 2025-2026 Deal Environment

For CFOs and company secretaries of Hong Kong-incorporated entities pursuing a SPAC merger, the 2024 case law and the SEC’s final rules require a fundamental shift in how the proxy statement is prepared. The traditional approach—where the sponsor’s legal counsel drafts the business description and the target’s counsel reviews it—is no longer sufficient.

Enhanced Due Diligence on Projections

The first and most critical step is to ensure that every financial projection in the proxy statement has a documented reasonable basis. This means the target company’s CFO must prepare a written analysis, signed by the CFO and reviewed by the audit committee, that reconciles each projection to historical financial data. The analysis should identify the key assumptions—such as customer acquisition cost, churn rate, and average revenue per user—and demonstrate that these assumptions are consistent with the company’s actual operating history. For a Hong Kong-incorporated company that reports under HKFRS, the reconciliation must also address any differences between HKFRS and U.S. GAAP, as the SEC’s rules require projections to be presented on a U.S. GAAP basis (SEC Release No. 33-11265, at 152). The sponsor should also engage a third-party financial advisor to provide an independent assessment of the projections, and that assessment should be disclosed in the proxy statement.

The Lucid Diagnostics ruling mandates that the proxy statement disclose the sponsor’s per-share return on its founder shares and warrants. For a Hong Kong-based sponsor, this calculation must be presented on a fully diluted basis, assuming all warrants are exercised. The disclosure should also include a sensitivity analysis showing how the sponsor’s return changes at different stock prices. Additionally, the proxy statement must disclose the sponsor’s redemption-avoidance strategy, including any agreement among sponsor members to vote their shares in favour of the merger. This disclosure should be accompanied by a discussion of the conflict of interest created by the sponsor’s economic incentive to close the merger even if the target’s business prospects have deteriorated. The SEC’s final rules require that the proxy statement include a “separate section” describing the sponsor’s conflicts of interest (SEC Release No. 33-11265, at 178).

Continuous Monitoring and Updating

Given the emerging duty-to-correct theory, the issuer and sponsor must establish a process for monitoring the accuracy of projections between the proxy statement filing date and the shareholder vote. This process should include monthly management meetings to compare actual performance against the projections, and a formal escalation procedure for notifying the board if a material deviation occurs. If a deviation of more than 10% from any key projection is identified, the issuer should file a proxy statement supplement with the SEC and provide notice to shareholders at least 10 business days before the vote. This 10-business-day notice period is consistent with the SEC’s guidance on material changes in proxy statements (SEC Division of Corporation Finance, Compliance and Disclosure Interpretations, Question 101.01).

Actionable Takeaways for Issuers and Sponsors

Every financial projection in a SPAC proxy statement is now presumptively subject to Section 11 liability, requiring a documented reasonable basis analysis signed by the CFO and reviewed by the audit committee.
The sponsor’s per-share return on founder shares and warrants must be disclosed as a dollar figure and a percentage, using a fully diluted share count, per the Lucid Diagnostics ruling.
A formal monitoring process must be established between the proxy statement filing and the shareholder vote, with a mandatory supplement filing if any projection deviates by more than 10%.
Hong Kong-incorporated targets must reconcile their HKFRS-based projections to U.S. GAAP in the proxy statement, and disclose any material differences in the accounting policies used.
The sponsor’s redemption-avoidance strategy and the resulting conflict of interest must be disclosed in a separate section of the proxy statement, with a sensitivity analysis of the sponsor’s return at different stock prices.