SPAC Attorneys — Special Purpose Acquisition Company Losses

Written and reviewed by

Ryan Bakhtiari, Partner — Bakhtiari & Harrison

Admitted: CA | NY | TX | DC | Multiple Federal Courts · Super Lawyers 2005–2026 · Former PIABA President · Former FINRA NAMC Chairman · Last reviewed: May 2026

Bakhtiari & Harrison represents investors in SPAC (special purpose acquisition company) fraud and misrepresentation claims in FINRA arbitration and securities litigation. The 2020-2021 SPAC boom produced hundreds of public offerings that raised billions of dollars — and a subsequent collapse in SPAC values that left retail investors with catastrophic losses while SPAC sponsors and early institutional investors profited through dilutive warrant structures and founder shares. Ryan Bakhtiari served as Chairman of the FINRA National Arbitration and Mediation Committee from 2013 to 2017 and as President of PIABA. Investor cases are handled on a contingency fee basis — no recovery, no fee.

What is a SPAC?

A special purpose acquisition company (SPAC) — also called a “blank check company” — is a shell company that raises capital through an IPO with the stated purpose of acquiring an existing private company. SPAC investors provide capital without knowing what company will be acquired. The SPAC has a defined period (typically 18-24 months) to complete an acquisition; if no acquisition is completed, the capital is returned to investors.

SPACs became extremely popular in 2020 and 2021 as an alternative to traditional IPOs for taking private companies public. Hundreds of SPACs raised billions in capital, and retail investors were actively encouraged by brokers, financial media, and social media to purchase SPAC shares before the acquisition target was announced — based entirely on the reputation of the SPAC sponsor.

A special purpose acquisition company is a shell company set up by investors with the purpose of raising money through an IPO to acquire another company.

A SPAC has no independent commercial operation, it doesn’t make or sell products. In fact, the SPAC’s only assets are typically the money raised in its own IPO, according to the SEC.

If you invest in a SPAC at the IPO stage, you are relying on the management team that formed the SPAC, often referred to as the sponsor(s), as the SPAC looks to acquire or combine with an operating company. That acquisition or combination is known as the initial business combination. A SPAC may identify in its IPO prospectus a specific industry or business that it will target as it seeks to combine with an operating company, but it is not obligated to pursue a target in the identified industry.

Usually a SPAC is created, or sponsored, by a team of institutional investors, Wall Street professionals from the world of private equity or hedge funds, while even high-profile CEOs. This is because when a SPAC raises money, the people buying into the IPO do not know what the eventual acquisition target company will be. Institutional investors with a track record of investing success are more easily able to persuade people to invest in the unknown. That’s also why a SPAC is also often called a “blank check company.”

Once the IPO raises capital (SPAC IPOs are usually priced at $10 a share) that money goes into an interest-bearing trust account until the SPAC’s founders or management team finds a private company looking to go public through an acquisition.

Once an acquisition is completed (with SPAC shareholders voting to approve the deal), the SPAC’s investors can either swap their shares for shares of the merged company or redeem their SPAC shares to get back their original investment, plus the interest accrued while that money was in trust. The SPAC sponsors typically get about a 20% stake in the final, merged company.

SPAC sponsors also have a deadline by which they have to find a suitable deal, typically within about two years of the IPO. Otherwise the SPAC is liquidated and investors get their money back with interest.

The structural conflicts in SPACs

Founder share dilution: SPAC sponsors typically receive 20% of the post-IPO shares for a nominal investment — the “founder’s promote.” This means that even if the SPAC completes an acquisition at no gain over the IPO price, the sponsor has made a significant profit while public investors have earned nothing.
Warrant dilution: SPAC IPOs typically include warrants that allow early investors and sponsors to purchase additional shares at a fixed price — diluting the value of post-acquisition shares held by retail investors who purchased at the IPO price.
Misrepresented acquisition targets: many SPAC acquisitions completed in 2020-2021 involved companies with inflated financial projections that were not subject to the same disclosure requirements as traditional IPOs. Post-acquisition earnings misses decimated share values.
Pressure to complete acquisitions: SPAC sponsors face financial pressure to complete an acquisition before the deadline to avoid returning capital — which can incentivize completing poor-quality deals that would not pass scrutiny in a traditional IPO process.

SPAC investor claims

Securities fraud claims against SPAC sponsors

When a SPAC acquisition was completed based on materially false projections or misrepresentations about the target company, investors may have securities fraud claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5. The SEC brought numerous enforcement actions against SPAC sponsors for misleading financial projections in 2022 and 2023.

FINRA arbitration claims against selling brokers

When a FINRA-registered broker recommended SPAC investments as suitable for a retail investor’s portfolio without adequate due diligence or disclosure of the structural conflicts inherent in SPACs, the investor may have a FINRA arbitration claim against the broker for unsuitable recommendation and misrepresentation.

Frequently asked questions — SPACs

I bought a SPAC before the acquisition was announced and lost most of my investment — do I have a claim?

Possibly. The key questions are whether your broker recommended the SPAC and whether that recommendation was suitable for your financial profile, whether the sponsor’s projections for the target company were materially false, and whether the structural conflicts (founder shares, warrants) were adequately disclosed. Bakhtiari & Harrison evaluates SPAC investor claims at no charge. SPAC

Can SPAC investors sue under securities fraud laws?

Yes. SPACs that issued materially false financial projections about acquisition targets may face securities fraud liability under federal law. The SEC has specifically clarified that the safe harbor for forward-looking statements does not protect SPACs to the same extent as traditional IPOs — making SPAC projections more readily actionable when they turn out to be false.

The SPAC I invested in was completed — the company is now public but worthless. What can I do?

Contact Bakhtiari & Harrison for a free evaluation. Claims against the SPAC sponsor for misrepresentation in connection with the acquisition, and against any selling broker who recommended the SPAC without adequate due diligence, are evaluated at no charge. Time limits apply — contact the firm promptly.

For a full overview of the firm’s investment product failure practice, visit the Product Failure page.

Contact a SPAC attorney — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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