MONTH-IN-BRIEF (Feb 2024)
Bespeaks-Caution Doctrine Applied in Dismissed SPAC Lawsuit
By Yelena Dunaevsky, Esq., SVP & Partner, Transactional Insurance
On February 6, 2024, the US District Court for the Southern District of New York dismissed a putative class action asserting claims under Sections 10(b) and 14(a) of the Securities Exchange Act against Trident Acquisitions Corp., a SPAC, and certain of its directors and officers. The SPAC’s merger with Lottery.com, Inc. (the Target) closed in October 2021. Plaintiffs alleged that the defendants misrepresented financial information and regulatory compliance and controls information of the Target before and after the merger. Some of the statements at issue involved financial projections and forward-looking statements, a notoriously controversial topic in the world of SPACs.
The court stated that “[t]wo doctrines – one statutory, the other judge-made – protect certain forward-looking statements from serving as the basis for claims of securities fraud.” The first doctrine derives from the Private Securities Litigation Reform Act of 1995 (the PSLRA), which has been subject of many heated SPAC-related discussions and was featured in the recently finalized SEC SPAC rules. The PSLRA creates a statutory “safe harbor” for certain forward-looking statements.