Special Purpose Acquisition Companies (SPACs) have gained significant attraction in recent years, emerging as a popular alternative to traditional initial public offerings (IPOs). These blank-check entities raise capital solely to acquire and take private companies public through de-SPAC transactions. The appeal of SPAC lies in their speed, pricing certainty, and reduced regulatory burden compared to traditional IPOs. SPACs provide flexibility in structuring deals and optimizing post-merger capital. Using hand-collected SPAC and IPO data, we find that SPACs are more likely to be sued than traditional IPOs. SPACs face more litigation risks due to their limited regulated oversights, conflicts of interest, and poor post-merger performance. This project examines the ways SPACs are exposed to more litigation risk. We use statistical data analysis to understand those reasons. SPACs are not subject to intense U.S. Securities and Exchange Commission (SEC) investigations before going public like traditional IPOs are. Due to the lack of legal oversight, financial projections fail to meet expectations and cause investors to frequently file class action lawsuits. This study investigates the litigation risks associated with SPACs and examines the structural factors that cause investor lawsuits in de-SPAC transactions.
