LORDSTOWN, Ohio – Electric-vehicle manufacturer Lordstown Motors Corp. earmarked nearly $34 million last year toward legal expenses to address litigation and investigations by federal agencies, according to the company’s latest regulatory filing with the U.S. Securities and Exchange Commission.
According to financial disclosures filed March 6, Lordstown Motors reports its selling, general and administrative expenses stood at $138.3 million as of Dec. 31, 2022, “including $33.9 million in litigation accruals.”
Lordstown Motors also recorded $11.4 million in direct legal expenses for the year.
The company or its directors and former directors face extensive legal challenges from shareholder derivative lawsuits, consolidated securities class action lawsuits, a complaint alleging Lordstown Motors violated trade secrets, and investigations by the SEC and the U.S. Department of Justice, regulatory filings say.
In October 2020, Karma Automotive LLC filed a complaint in the U.S. District Court for the Central District of California alleging Lordstown Motors, along with several former and current officers and employees, “brazenly stole secrets” from Karma and poached a specialized team of employees. The litigation is ongoing, and the court has scheduled a trial to begin April 11.
“The company is continuing to evaluate the matters asserted in the lawsuit and is vigorously defending against Karma’s claims,” Lordstown Motors stated in its regulatory filing. “The company continues to believe that there are strong defenses to the claims and any damages demanded.”
Between March 18 and May 14, 2021, six securities class action lawsuits were filed in U.S. District Court for the Northern District of Ohio against Lordstown Motors, according to records.
These suits were filed in the wake of short-seller Hindenburg Research’s scathing analysis of Lordstown Motors that March. The report alleged the company and its executives inflated the number of preorders for its inaugural vehicle, the all-electric Endurance pickup.
A subsequent internal inquiry found that executives had made public misstatements about the Endurance. Lordstown Motors founder and CEO Steve Burns, along with the company’s chief financial officer, resigned in June 2021.
The lawsuits, which have since been consolidated, allege the company and individual defendants made “material false and misleading statements” related to preorders of the Endurance and its production timeline, according to regulatory filings.
The value of Lordstown’s shares began to nosedive shortly after the Hindenburg report. On Feb. 12, 2021, shares of Lordstown Motors, which trades on Nasdaq under the ticker RIDE, closed at $26.91 per unit. By May 14, its share value had plummeted to $7.33.
As of the close of business March 9, 2023, RIDE stock traded at an all-time low of 84 cents per share.
The Hindenburg report also unleashed a series of stockholder derivative lawsuits against company directors and officers and former officers of DiamondPeak Holdings Corp., the blank-check company that took Lordstown Motors public in October 2020.
Between April 28, 2021, and Dec. 2, 2021, six stockholder derivative lawsuits were filed against officers, directors or former officers and directors of Lordstown and DiamondPeak. Four were filed in U.S. District Court for the District of Delaware and are now consolidated. One complaint was filed in the U.S. District Court in Northern Ohio and another in the Delaware Court of Chancery.
These complaints allege that DiamondPeak and Lordstown Motors executives, officers or former officers and employees breached their fiduciary duties, engaged in insider selling and received “unjust enrichment” as a result, documents show.
Also, two class action lawsuits were filed against DiamondPeak directors and DiamondPeak Sponsor LLC on Dec. 8 and 13, 2021.
And Lordstown Motors acknowledged in 2020 that it had received two subpoenas from the SEC requesting documents related to the company’s merger with DiamondPeak and preorders of the Endurance. It was also informed that the U.S. Attorney’s Office for the Southern District of New York was investigating these matters, filings show.
“The company has cooperated, and will continue to cooperate, with these and any other regulatory or governmental investigations and inquiries,” the latest SEC filing states.
Lordstown Motors stated in its filing March 6 that it has already racked up substantial legal costs. Moreover, the company warned that its insurance might be insufficient to cover losses associated with any legal settlements or court orders, the filing noted.
Lordstown Motors’ legal issues compound other challenges facing the company, including quality matters with the Endurance and production costs.
The company has struggled with securing enough capital to maintain limited production of the Endurance and is actively searching for an original equipment manufacturer, or OEM, to invest in the Endurance.
On March 6, the company cautioned that it could “pause” production of the Endurance pickup this year should it not find a partner to co-develop its flagship vehicle.
As it stands, Edward Hightower, president and CEO, says, the cost to build the Endurance is materially higher than its sale price.
While the company has an investment agreement with Foxconn to develop future vehicles, it does not have one for the Endurance.
“It’s an upside-down margin on each one,” Hightower says of the Endurance. “We believe the most prudent decision is to bring on a partner.”
The statements come on the heels of a voluntary recall the company initiated last month that has already led Lordstown Motors to temporarily halt production of the Endurance. The recall affected 19 vehicles either in customers’ hands or owned by the company. To date, Lordstown Motors reports that it has sold six vehicles.
Hightower says the company would announce “in the coming weeks” when it would resume production of the Endurance. Meanwhile, the CEO says a new vehicle is in the works with Foxconn, and he remains optimistic about the future of Lordstown Motors.