Aon | Financial Services Group
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Electric vehicle (EV) and adjacent companies, such as lithium battery manufacturers, and their respective directors and officers (D&Os), have been frequent targets of securities class action litigation over the past four years. Many EV companies that have gone public during that window did so through deSPAC transactions, and the numbers speak volumes. Of the approximately 70 securities class actions brought against SPAC or deSPAC entities since early 2019, 16 of them—nearly 25%—were brought against EV companies and their D&Os, among other deal participants.
Equally notable is the plaintiffs' success rate in these securities class actions. Of the four deSPAC-related class actions brought against EV companies in which motions to dismiss have been decided, at least some of the plaintiffs’ claims have survived in every such case. For example, on October 20, 2022, a California federal court declined to dismiss securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 brought against an electric car manufacturer and its D&Os concerning the defendants’ alleged misrepresentations about customer reservations for a particular electric vehicle. Absent an early resolution, the claims that have survived motions to dismiss in these cases will proceed into the likely prolonged and expensive discovery that could increase the settlement value of such cases.
Beyond federal securities class actions, EV companies and their D&Os have been targets in other significant litigation and related matters, including shareholder derivative lawsuits and actions brought by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ). For example, the SEC secured a $125 million settlement with an EV company and the DOJ recently secured a securities fraud conviction against the same company's CEO.
The frequency and severity of the foregoing litigation underscore the risks that EV companies and their D&Os face and the need to put in place robust D&O insurance to help mitigate such risks.
Aon is not a law firm or accounting firm and does not provide legal, financial or tax advice. Any commentary provided is based solely on Aon’s experience as insurance practitioners. We recommend that you consult with your own legal, financial and/or tax advisors on any commentary provided by Aon. The information contained in this document and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity.