![handle is hein.journals/rutglr50 and id is 1 raw text is:
WRITING A BLANK CHECK:
REVISITING THE SECOND CIRCUIT'S PLEADING STANDARDS OF SECURITIES
EXCHANGE ACT SECTION 20(a) IN THE RISE OF SPAC LITIGATION
Melissa Perezi
A board of directors of a promising music streaming corporation has decided they want to
raise capital publicly quickly and without the regulatory nets of an initial public offering.
Instead, the corporation acquires a publicly traded shell company and becomes listed on -
secondary markets, including Nasdaq. This process is known as acquiring or merging with a
Special Purpose Acquisition Company (SPAC).2 In doing so, investors continue pouring millions
of dollars into the corporation with high hopes of positive returns.3 However, it turns out that the
corporate officers have not been entirely honest about the music corporations' stability and
success; they misrepresented financial results by falsifying its number of subscribers to the
streaming market. Outraged, the investors decide to file suit against the corporation in the State
of New York alleging, among other violations, that the corporate officers are responsible for
securities fraud. Will these corporate officers be held liable for their misrepresentations? The
answer: it depends.
1 J.D., Rutgers Law School, Class of 2022
2 Note that a SPAC/de-SPAC process includes a more complex procedure before a final merger. SPACs exist
before a deal; many are actively searching for companies they wish to acquire. When a SPAC identifies a potential
match, they'll begin the acquisition process ... [then,] the SPAC undertakes the due diligence to verify that the
company is presenting itself accurately; there are also target valuation considerations from the NASDAQ and
NYSE. The de-SPAC transition process officially begins once the formal merger is announced. Once a merger
agreement is signed, the deal is announced publicly and investors are notified. After such processes, the business
files an S-4 statement with the SEC to trigger the next phases of the de-SPAC transition for the newly created entity.
Craig Clay, What is a De-SPAC Transaction? DONNELLY FIN. SOLUTIONS (May 3, 2021),
https://www.dfinsolutions.com/knowledge-hub/thought-leadership/knowledge-resources/what-de-spac-transaction.
3 Not all SPAC investors seek positive returns; rather, investors seek a variety of return and risk profiles and
timelines that they may benefit from a SPAC/de-SPAC transaction. Max H. Bazerman & Paresh Patel, SPA CS:
What You Need to Know, HARV. Bus. REv. (July-Aug. 2021), https://hbr.org/2021/07/spacs-what-you-need-to-
know.
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