Legal Risk and Capital Commitment in SPAC Transactions: Assessing Enforceability and Investor Credibility Post-Merger

The Special Purpose Acquisition Company (SPAC) market, once a dominant force in capital markets, has faced mounting scrutiny over legal risks and post-merger performance. As of 2025, investors and sponsors must navigate a complex web of contractual enforceability issues and credibility challenges, particularly in the wake of regulatory tightening and high-profile litigation. This analysis examines how recent court rulings and SEC actions are reshaping the landscape for SPAC-related capital commitments, with a focus on enforceability of lock-up provisions, PIPE (Private Investment in Public Equity) agreements, and the broader implications for investor trust.

Contractual Enforceability: Lock-Up Provisions and SEC Scrutiny

The enforceability of post-merger capital commitments has been tested in courtrooms and regulatory proceedings. A landmark case in 2025, Trump Media and Technology Group Corp. v. United Atlantic Ventures, underscored the Delaware Court of Chancery's support for SPAC lock-up provisions. The court ruled that transfer restrictions-commonly used to stabilize stock prices post-merger-were valid under Delaware law, even when shares were issued after the merger. The decision hinged on the interpretation of Section 202 of the Delaware General Corporation Law (DGCL), which the court applied to affirm that lock-up restrictions bind shareholders who received shares post-merger.

This ruling aligns with broader regulatory trends. The SEC's 2024 final rules, which mandate enhanced disclosures for SPACs, have further solidified the legal framework around capital commitments. These rules require SPACs to detail sponsor compensation, valuation risks, and conflicts of interest in proxy statements, effectively raising the bar for transparency. However, the enforceability of such provisions remains contingent on precise drafting. For instance, rejected arguments that lock-up terms were "unreasonable," emphasizing their role in curbing market volatility-a standard that may not apply if terms are overly restrictive or ambiguously worded.

Investor Credibility: Fiduciary Duties and Disclosure Failures

Investor credibility has become a focal point in SPAC litigation, particularly in cases where fiduciary duties were allegedly breached. Delaware courts have consistently applied the "entire fairness" standard to SPAC mergers, requiring directors to prove that transactions were both fair in price and process. In In re MultiPlan Corp. Shareholders Litigation and Delman v. GigAcquisitions3, LLC, courts denied motions to dismiss claims that SPAC fiduciaries failed to disclose material risks, such as inaccurate valuations and insufficient post-merger liquidity. These cases culminated in a $33.75 million settlement in MultiPlan, reflecting the financial stakes of credibility disputes.

The SEC's enforcement actions have further amplified these concerns. In 2023 and 2024, the agency penalized SPACs like Digital World Acquisition Corp. (DWAC) and Northern Star Investment Corp. II for misleading disclosures about merger negotiations, imposing fines totaling $19.5 million. These actions highlight the SEC's focus on materiality and due diligence, with Commissioner Mark Uyeda dissenting on the grounds that some omissions were non-material. Nonetheless, the regulatory climate remains stringent, with investors increasingly empowered to challenge SPACs that fail to meet disclosure standards.

Regulatory Evolution: Balancing Innovation and Accountability

The SEC's 2024 rules represent a pivotal shift in aligning SPACs with traditional IPO standards. By requiring detailed disclosures, the agency aims to mitigate conflicts of interest and enhance investor protection. For example, the rules now hold target company directors liable for misstatements in registration statements, a move designed to deter "reckless optimism" in SPAC proxy statements.

However, regulatory clarity has not eliminated all risks. The failure of 23andMe, a genetics-testing company that merged with a SPAC in 2021 at a $3.5 billion valuation, illustrates the lingering challenges. The company's subsequent bankruptcy has fueled skepticism about SPACs' ability to accurately price early-stage ventures. Such cases underscore the need for rigorous due diligence and realistic financial projections, even as regulatory frameworks evolve.

Conclusion: Navigating the New SPAC Landscape

For investors and sponsors, the post-merger SPAC environment demands a dual focus on legal rigor and market realism. Courts and regulators have made it clear that enforceability of capital commitments hinges on precise contractual language and adherence to disclosure standards. At the same time, credibility crises-exemplified by cases like MultiPlan and 23andMe-highlight the perils of overpromising in a high-stakes market.

As SPACs continue to adapt to regulatory scrutiny, the lessons from recent litigation and enforcement actions are clear: transparency, accountability, and alignment of interests will be critical to restoring investor confidence. For sponsors, this means structuring PIPEs and lock-up provisions with legal precision. For investors, it means scrutinizing disclosures with a critical eye. In an era where legal and financial risks are inextricably linked, the SPAC model's survival will depend on its ability to balance innovation with integrity.