William M Alleman Jr. mentioned in Law360 | “SPAC Investor Sues In Del. For $20M CryptoDeal Breakup Fee”

By Leslie A. Pappas

Law360 (December 20, 2022, 7:32 PM EST) -- An investor in a special purpose acquisition company formed by New York investment firm Atlas Merchant Capital LLC has sued in Delaware's Court of Chancery, claiming that the SPAC's sponsor is attempting to pocket a $20 million breakup fee after failing to merge with a cryptocurrency company.

The SPAC, Concord Acquisition Corp., had attempted to buy Boston-based block chain based payment firm Circle Internet Financial Ltd., according to the complaint filed late Monday. But industry troubles killed the deal, and in December Concord decided it would wind down, leaving sponsors with nothing to show for their investment, the complaint says.

"Unhappy with the reality of that result, defendants decided to award themselves a 'consolation prize' by misappropriating a $20 million break-up fee paid by Circle that rightfully belongs to plaintiff and the proposed class as the SPAC's public shareholders," investor Funicular Fund LP alleged in its verified class action complaint.

Funicular named Concord, its sponsor Concord Sponsor Group LLC, the SPAC's board chair Bob Diamond, its CEO Jeff Tuder and several others as defendants.

The fund is seeking a court injunction preventing Concord from dissolving and distributing the $20 million breakup fee to anyone but the public shareholders.

"This is the second case we've filed where a SPAC sponsor announced its intent to pack it up and head home with a corporate asset in its back pocket," Aaron T. Morris of Morris Kandinov LLP, an attorney for Funicular, told Law360 in an email Tuesday. "We look forward to clarifying, on our client's behalf, that corporate assets belong to stockholders, even in the wild world of SPACs."

Concord and Atlas did not respond Tuesday to requests for comment.

The complaint is the latest in a string of lawsuits involving SPACs, also sometimes called "blank check companies." SPACs are corporate shell entities created to raise money through an initial public offering and then use the funds to take a private company public through a reverse merger, usually within 18 to 24 months.

Public investors who buy common shares in a SPAC, usually at $10 per share, are guaranteed to get their money back with interest if it does not complete a merger within a set time frame.

Sponsors and officers of a SPAC usually hold a different type of shares called "founder shares," which can become valuable after a merger is completed, but usually become worthless if the SPAC doesn't do a deal.

Atlas formed Concord in September 2020 with the goal of merging with a private financial services or technology company, and it raised $276 million in December 2020 through an initial public offering Class A common stock at $10 per share. Defendants in the suit invested a total of $25,000 for 7.1 million founder shares, which they agreed to forfeit if Concord failed to find a merger target, the complaint says.

Concord announced in July 2021 that it would invest in Circle in a transaction it valued at $4.5 billion.

After widespread interest in cryptocurrencies drove market valuations up, the parties revised their agreement in February 2022, increasing the value of the deal to $9 billion.

But by November, after several high-profile crypto companies had collapsed and cryptocurrency exchange FTX declared bankruptcy, Concord and Circle called off the deal, announcing Dec. 5 that they had mutually agreed to terminate the transaction.

Despite having agreed in advance to accept a complete loss if they failed to orchestrate a business combination for the SPAC, the defendants announced that Class A stockholders would receive back only their initial investments, the complaint says.

"Defendants planned to keep for themselves all of the Circle shares received as a result of the break-up fee, despite their fiduciary duties to Class A stockholders, their written assurances otherwise, and their contractual waiver of all rights to any liquidating distributions," the complaint says.

The case is similar to a lawsuit filed in August by investors in a SPAC that failed to buy Landry's restaurants and the Golden Nugget casinos, said William M Alleman Jr. of Meluney Alleman & Spence LLC, an attorney for Funicular, in a letter to the court Tuesday.

In that case, sponsors of the special purpose acquisition company FAST Acquisition Corp. proposed to keep a $23.7 million termination fee after the merger fell through.

Several related suits involving FAST were consolidated in September. Morris Kandinov was selected as co-lead counsel with Bernstein Litowitz Berger & Grossmann LLP in that suit.

In his letter Tuesday, Alleman suggested that Vice Chancellor Paul A. Fioravanti Jr., who is handling the consolidated FAST lawsuit, could be assigned to Funicular's case as well.

Funicular is represented by Aaron T. Morris and Andrew W. Robertson of Morris Kandinov LLP, Angus F. Ni of AFN Law PLLC, and William M. Alleman Jr., Sean A. Meluney and Stephen A. Spence of Meluney Alleman & Spence LLC. Counsel information for the defendants was not immediately known. The case is Funicular Funds LP v. Concord Acquisition Corp. et al., case number 2022-1173, in the Court of Chancery of the State of Delaware.

--Additional reporting by Benjamin Horney. Editing by Adam LoBelia.