LORDSTOWN, Ohio – Oct. 22, 2020, was a big day for Lordstown Motors Corp.
That morning, shareholders of DiamondPeak Holding Corp. approved its merger with the electric-vehicle startup, expediting Lordstown Motors’ public listing on the Nasdaq exchange.
It was also a big day for David Hamamoto, the founder and CEO of DiamondPeak.
The same day the merger was approved, Hamamoto sold one million shares of newly minted Lordstown stock worth $16.3 million.
The shares were sold to trusts established for the benefit of Hamamoto’s family related to estate planning transactions, according to documents filed with the U.S. Securities and Exchange Commission.
The transaction set in motion from Day One insider sell-offs from the now bankrupt company that over the next 2½ years totaled more than $95 million, records show. The vast majority of these sales are the result of a single individual, the founder and ex-CEO Stephen Burns, who in the end walked away with more than $66.8 million.
SPAC MERGER
Hamamoto – a former executive at Goldman Sachs and a savvy real estate investor – established
DiamondPeak in 2018 as a special purpose acquisition company, or SPAC. These companies are listed publicly and are designed to raise capital to acquire an existing venture and immediately take that company public once the merger is approved. In this case, DiamondPeak had raised $500 million from investors as it sought the merger with Lordstown.
Initially, DiamondPeak informed investors that it would likely target the real estate market and acquire a company in that sector, according to SEC documents. However, the nascent EV space, buoyed by the success of Tesla, provided an opportunity to get in on the ground floor of what could be a lucrative future in the EV truck market.
DiamondPeak then pivoted from its original intentions and announced on Aug. 3, 2020, that it would merge with Lordstown Motors, established just a year earlier by Burns, the former CEO of Workhorse Group.
That same day, a joint press release announcing the deal bragged of Lordstown’s potential.
The company had unveiled its prototype EV pickup, the Endurance, in June 2020 during a press event at the plant attended by U.S. Vice President Mike Pence. And, according to a statement by Burns, the company had “secured $1.4 billion of pre-orders” for the Endurance.
Hamamoto added that Lords-town’s executive team, led by Burns, gave the company a “competitive advantage,” positioning the company to begin commercial production of the Endurance during the second half of 2021. Lordstown Motors planned to build the Endurance at the former General Motors Assembly complex in Lordstown, which it purchased for $20 million in November 2019.
Not all of DiamondPeak’s shareholders were happy with the deal. A class action complaint filed in New York County Court against DiamondPeak and its directors less than a month after the merger announcement questioned whether DiamondPeak’s shareholders would benefit from the deal. “Certain insiders stand to receive massive benefits as a result of the proposed transaction,” the complaint stated, while common shareholder value would be diluted.
The lawsuit was voluntarily dismissed in September 2020.
In the wake of the announcement, DiamondPeak’s stock climbed to $29 per share by Sept. 14, 2020. The stock dipped to $18.21 by Oct. 23, 2020, the first day shares were publicly traded as Lordstown Motors Corp.
That day, Burns was awarded 46,351,745 shares in company stock options. At the time, Burns was the largest single shareholder in the company, owning more than 26% of Lordstown stock. Under an agreement with the company, half of Burns’ shares were blocked from sale until October 2021, while his other holdings would be restricted until October 2022.
Over the next several months, the stock soared, at one point cresting to more than $30 per share in early February 2021.
EXECUTIVES SELL STOCK
As Lordstown’s stock climbed, company insiders whose shares were not under the same restrictions as Burns began to sell their holdings.
On Dec. 11, 2020, then Lordstown Motors President Richard Schmidt sold 51,900 shares of RIDE stock at an average of $20.29 per unit, cashing out $1.053 million, according to regulatory filings. Schmidt followed with another sale on Feb. 2, 2021.
That transaction involved the sale of 211,512 shares at an average price of $25.23 per share, yielding more than $5.336 million.
Three days after Schmidt’s first sale, Chuan Vo, former vice president for propulsion, cashed in 98,300 shares of RIDE stock, valued at $20.31 per share, SEC documents show. That transaction netted the executive $1.996 million.
On Feb. 2, 2021, Vo cashed in 100,000 shares at $25.21 for $2.521 million, according to regulatory filings. Another sale dated Feb. 3, 2021, shows Vo sold another 1,000 shares at $26 per unit for a total of $26,000.
Vo also made two company stock purchases during the period, records show. On Jan. 12, 2021, the vice president spent $1.549 million to buy 61,000 shares of RIDE stock and purchased another 65,350 shares on Feb. 17, 2021, for $1.264 million. Still, Vo left with a net gain of more than $1.7 million.
Three other Lordstown Motors executives reported stock sales in early 2021, records show. Shane Brown, chief production officer, sold 19,008 shares for $468,183 on Feb. 2; Darren Post, vice president of engineering, sold 10,000 shares for $272,100 on Feb. 4; and Julio Rodriguez, Lordstown’s then-chief financial officer, on Feb. 4 cashed in 9,300 shares at $27 per unit for $251,100, according to regulatory filings.
SEC INQUIRY INTO SPAC DEAL
The sales in early February 2021 came just two weeks before Lordstown Motors received a request from the SEC for “the voluntary production of documents and information, including relating to the merger between DiamondPeak and Legacy Lordstown and pre-order of vehicles,” states a regulatory filing. Lordstown Motors did not disclose the inquiry until a month after it received the SEC letter.
SPACs came under federal scrutiny shortly after the Lordstown merger as similar deals elsewhere that brought other EV startups public stood on shaky ground. Regulators were calling for more oversight during the initial public offering process since SPACs are generally riskier for retail investors because the same regulatory or disclosure process does not bind them as traditional IPOs.
But questions about the SPAC deal were the least of Lordstown’s problems.
On March 12, 2021, Hindenburg Research published a scathing analysis on Lordstown Motors, accusing company executives of misleading investors about demand for the Endurance and the company’s financial strength. “Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities,” the report warned. In fact, Lordstown’s claim of securing 100,000 preorders for the Endurance was “fictitious,” the report said.
Lordstown’s stock plummeted more than 16% immediately after the Hindenburg report was issued.
Moreover, the report detonated a flurry of class action lawsuits accusing Lordstown Motors insiders of profiting as the company lost more than $1 billion in capitalization.
A shareholders derivative lawsuit filed in U.S. District Court in Delaware two months after the Hindenburg report alleges executives, directors, and former directors of Lordstown and DiamondPeak misled the public and damaged the company.
“These actions have irreparably damaged Lords-town’s corporate image and goodwill,” documents say. “For at least the foreseeable future, Lordstown will suffer from what is known as the ‘liar’s discount,’ a term applied to the stock of companies who have been implicated in misleading the investing public,” the lawsuit says.
The complaint singles out Rodriguez, Hamamoto and Schmidt for selling Lordstown shares “while in possession of material, adverse nonpublic information that artificially inflated the price of Lordstown stock. As a result, Rodriguez, Schmidt, and Hamamoto profited from their misconduct and were unjustly enriched through their exploitation of material and adverse inside information.”
BURNS IS OUT, BEGINS SELL-OFF
In June 2021, Burns and CFO Rodriguez resigned after an internal inquiry found “issues regarding the accuracy of certain statements regarding the company’s preorders.” Lordstown Motors did not mention any executives by name but did take issue with Hindenburg’s interpretation. Schmidt resigned as president later that year, and the company appointed Daniel Ninivaggi as its new CEO and president. Edward Hightower now holds that title and Ninivaggi is the company’s chairman.
Burns, still Lordstown Motors’ largest single shareholder, received a $750,000 severance package to be paid over 18 months and was allowed to retain all of his shares in the company. His exit opened the door for the largest single sell-off of stock.
Meanwhile, other major investors had pulled out of Lordstown Motors. Workhorse Group, which once had a 10% stake in the company, had liquidated its holdings in 2022 at a loss estimated at more than $70 million. General Motors, which invested $75 million in cash and noncash contributions in return for a 4.8% stake, also sold its share in the troubled EV startup last year.
Between Nov. 16, 2021, and June 21, 2023, Burns liquidated all 46,351,745 shares that at one point comprised more than 26% of the company.
The stock value of the company plunged in the months following the management shake-up at Lordstown.
Burns’ first sell-off on Nov. 12, 2021, constituted jettisoning 3,204,000 shares worth $18.8 million at $5.88 per share.
On June 16, approximately 10 days before the company he founded filed for Chapter 11 bankruptcy, the former CEO sold off his remaining 591,752 shares for a total of $3.9 million.
A complete analysis of Lordstown Motors’ insider stock sales show that Burns’ total sell-off amounted to $66.8 million. Other than Burns, no other Lordstown Motors insider has sold stock since February 2021.
In all, Lordstown Motors insiders cashed in for a sum of $95,078,089 between October 2020 and June of 2023, records show.
Pictured at top: A prototype of the Endurance is unveiled June 25, 2020, with Vice President Mike Pence in attendance.