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SPAC Pioneer M. Klein Sued Over MultiPlan Blank-Check Merger (1)

March 25, 2021, 6:43 PM; Updated: March 25, 2021, 7:05 PM

A “blank check” company investor sued MultiPlan Corp. and the M. Klein & Co. affiliates that sponsored its merger with a special purpose acquisition company, claiming in Delaware on Thursday that they made a 1.2 million percent return on the backs of public investors who got ripped off.

While former Citigroup Inc. investment banking chief Michael Klein turned a $25,000 investment into $300 million, “the unlucky investors” who “put their faith in M. Klein’s skills and abilities received a rude—but prompt—awakening,” the complaint says. “The result has been a financial catastrophe.”

The proposed class action, filed in Delaware Chancery Court, stems from the merger between the SPAC sponsored by Klein—Churchill Capital Corp. III—and MultiPlan, a health analytics company previously controlled by private equity firm Hellman & Friedman LLC.

M. Klein, Churchill Capital, and MultiPlan didn’t immediately respond to requests for comment Thursday.

SPACs, known as blank-check companies, are publicly traded entities that raise money on the promise of a future merger with an existing privately held company that can then access public markets without the hassle of an initial public offering.

Klein became a “serial sponsor of SPACs” after leaving his senior role at Citi, founding seven of them, according to the complaint, which targets the former board of Churchill Capital—before its merger with MultiPlan—and other Klein affiliates that played a role in the transaction.

The suit accuses them of misleading the SPAC’s investors into approving a badly underpriced deal with MultiPlan by concealing that it was about to “crater” when UnitedHealth Group Inc., its top customer, not only withdrew from their relationship but created a competing business unit.

Klein and his affiliates hid that information because of their “strong (indeed, overriding) incentives to get a deal done—any deal—without regard” for the best interests of outside investors, according to the complaint.

Those incentives included provisions giving the Klein-affiliated sponsor and its affiliates on the board the right to buy “founder shares” at a huge discount if it successfully completed a merger, the suit says. Those are the shares that allegedly increased in value by more than 1.2 million percent.

The company’s pre-merger value of $1 billion has now fallen to less than $600 million, according to the complaint.

The court should make clear that “the core foundations of Delaware corporate law still apply” to Wall Street’s “latest and greatest innovation,” which is “conflict-laden and practically invites fiduciary misconduct,” the suit says.

Cause of Action: Breach of fiduciary duty; aiding and abetting.

Relief: Damages, costs, fees, interest, and an order reopening the window for investors to redeem their shares at the purchase price.

Potential Class Size: Thousands of former Churchill Capital stockholders.

Attorneys: The plaintiff is represented by Bernstein Litowitz Berger & Grossmann LLP and Kaskela Law LLC.

The case is Amo v. MultiPlan Corp., Del. Ch., No. 2021-0258, complaint filed 3/25/21.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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