Firm Files Direct Claims for Breaches of Fiduciary Duty in Delaware Chancery Court on Behalf of SPAC Investor in Latch, Inc. Merger
May 15, 2023
On May 9, 2023, Fishman Haygood attorneys Brent Barriere, Jason Burge, and Kaja Elmer brought a class action complaint on behalf of Phanindra Kilari and other stockholders of TS Innovation Acquisitions, Inc. (TSIA) in the Delaware Court of Chancery. TSIA, a special purpose acquisition company or “SPAC”, acquired and merged with Latch, Inc., a prop-tech company providing keyless entry systems. Latch’s share price plummeted when it reported to the U.S. Securities and Exchange Commission that its financial statements made in connection with the merger were unreliable and would need to be restated. Kilari alleges breach of fiduciary duty claims against TSIA’s board of directors, TS Innovation Acquisitions Sponsor, LLC, and the controlling stockholders of Tishman Speyer Properties, L.P., among others involved with the deal. Read more coverage by Law360.
As stated in the complaint, a SPAC “is a publicly traded company created to pool funds through an initial public offering (‘IPO’) for the specific purpose of completing an acquisition or other business combination with an existing private company.” Through this process, the target company becomes public through a reverse merger and does not have to conduct its own IPO, minimizing the target company’s own required disclosures and streamlining its ability to go public. Investor capital is placed in a trust pending the merger, with investors having a right to redeem their shares for the original share price plus interest prior to the merger.
SPAC transactions have recently come under fire due to their often inherently conflicted nature. The complaint alleges that in this case, like in many SPACs, the Sponsor and the individual board members of TSIA were conflicted because they stood to receive an incredible return on investment from their founder shares, even in a value-decreasing merger. The complaint alleges the management and board members breached their two primary duties: (1) to conduct a fair process and perform due diligence to select an acquisition target, and (2) to provide public investors with enough information to determine whether to redeem the shares of their initial investment, plus interest, or invest in the private merger company. The breach of these duties led investors like Kilari not to exercise their redemptions rights before the merger, resulting in devastating losses.
As explained further in the complaint, investors were given misinformation about Latch in connection with the merger, including inflated sales revenue, bogus hardware sales figures, unrealistic plans for international market expansion, and more. The suit alleges that the “disclosures surrounding the deal were not just marginally flawed, but affirmatively false and misleading,” which resulted in the catastrophic plummet of Latch stock. Click here to read the full complaint.
P. Bradford deLeeuw of deLeeuw Law LLC also represents Kilari.
Fishman Haygood represents both plaintiffs and defendants in class action and mass action litigation, both in Louisiana and across the nation. Click here for more information.