SEC charges Lordstown Motors with misleading investors on sales outlook

Dive Brief:

The Securities and Exchange Commission charged Lordstown Motors and its former CEO with misleading investors by exaggerating the sales outlook for the Endurance, its full-size electric pickup truck.
Lordstown, which filed for bankruptcy in June, agreed to the disgorgement of $25.5 million without admitting or denying the SEC’s findings. The penalty will be satisfied by settlement payments in pending class action suits against Lordstown and other defendants, the agency said. One defendant, former Lordstown CEO Steve Burns, did not respond to a request for comment.
“We allege that, in a highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold true demand for the Endurance,” Mark Cave, associate director of the SEC’s enforcement division, said Thursday in a statement. “Exaggerations that misrepresent a public company’s competitive advantages distort the capital markets and foil investors’ ability to make informed decisions about where to put their money.”

Dive Insight:

Burns launched Lordstown as a private company in April 2019 with the aim of manufacturing an electric truck, and purchased an assembly plant from General Motors a few months later.

In October 2020, Lordstown completed a merger with DiamondPeak, a special purpose acquisition company, and received approximately $675 million in proceeds, the SEC said in an order dated Thursday.

Lordstown at the time of its merger touted to investors that it was well positioned to seize a “first mover” advantage by becoming the first automaker to deliver an electric truck to fleet customers, according to the SEC. Lordstown said it had received 27,000 “preorders” for the Endurance from the fleet market equivalent to $1.4 billion in revenue.

Lordstown forecast for investors that it would sell 2,200 Endurance trucks in 2021, 31,600 trucks in 2022 and 65,000 trucks in 2023, generating $5.3 billion in total revenue, according to the SEC.

“From August 2020 to February 2021, however, Lordstown and Burns made numerous materially false or misleading statements about Lordstown’s business, including its ‘pre-orders,’ access to critical parts from GM and the delivery timeline for the Endurance,” the SEC said.

“These misrepresentations concealed the truth about the demand for the Endurance, and about Lordstown’s ability to be the first company to manufacture and deliver an electric full-size pickup truck to the commercial fleet market,” the agency said.

In March 2021, Hindenburg Research, having shorted Lordstown stock, alleged in a report that the automaker’s claim to have secured 100,000 pre-orders was largely fictitious, the SEC said. Many of the customers did not even own fleets of vehicles.

Lordstown lacked policies for evaluating pre-order counterparties and for recording, tracking or maintaining pre-order data, the SEC said. It also fielded a sales team primarily made up of agents who lacked experience selling autos.

The auditor and adviser for Lordstown also faces sanctions.

The SEC settled an administrative motion brought against Clark Schaefer Hackett for violating independence standards by providing auditing services while also performing bookkeeping and financial statement services to Lordstown, the agency said Thursday. The firm also audited the financial statements related to Lordstown’s merger with DiamondPeak.

Without admitting or denying the SEC’s findings, Clark Schaefer Hackett agreed to more than $80,000 in civil penalties. It did not respond to a request for comment.