Partners Harris B. Katz and Alexander A. Truitt successfully obtained dismissal of all claims against their client in a complex securities litigation pending before the New York Supreme Court, Commercial Division.
The lawsuit alleged that a special purpose acquisition corporation (the “SPAC”), its CEO, and outside counsel engaged in ultra vires conduct by purportedly issuing stock that was claimed to have diluted the SPAC’s IPO investors’ interests by more than $7 million. According to the Complaint, the transaction was allegedly part of a fraudulent scheme to issue 724,000 shares to a non-party hedge fund, which then liquidated those shares on the open market. The Plaintiff, a stock transfer company acting as trustee for the SPAC’s IPO proceeds, asserted claims for fraud, aiding and abetting, conspiracy, and breach of fiduciary duty on behalf of the SPAC’s IPO investors.
On October 1, 2025, Justice Anar R. Patel granted WSS LLP’s client’s pre-answer motion to dismiss, holding the Plaintiff lacked standing to bring the action on behalf of the SPAC’s IPO investors. The Court explained that under the governing trust agreement, the Plaintiff was only authorized to act at the direction of the SPAC, and its authority was limited to safeguarding the cash proceeds held in trust. Because the alleged injury concerned dilution of the IPO investors pro rata claims — not a diminution of the trust’s assets themselves — the Plaintiff did not have a direct stake in the litigation.
As Justice Patel wrote:
“The most critical requirement of standing… is the presence of injury in fact—an actual legal stake in the matter being adjudicated…. the trust property for which Plaintiff is a trustee, consists only of cash proceeds. Those proceeds have not been harmed. When the trust account is ultimately distributed, this may impact the initial IPO investor’s pro rata claim to the funds in the account, but it does not impact the total amount of funds held in the trust.”
This decision underscores the importance of carefully analyzing the relationship between the parties and the claims asserted when performing an early case evaluation and assessing the potential to seek dismissal at the outset of a case. Winget Spadafora & Schwartzberg LLP represents clients in the defense of sophisticated securities, corporate governance, and fiduciary duty lawsuits, including high-stakes litigation involving IPOs, SPACs, and investment trusts. Should you have any questions concerning defenses to such claims, please contact our attorneys.
