Lawsuit Claims Lordstown Motors Execs Misled Investors Over Foxconn Problems
YOUNGSTOWN, Ohio – A lawsuit filed yesterday in federal court claims executives from electric-vehicle startup Lordstown Motors Corp. misled investors and failed to disclose the nature of the company’s partnership with Foxconn as a joint venture agreement and subsequent investment deal between the parties unraveled.
A class action complaint filed in U.S. District Court for the Northern District of Ohio alleges that Lordstown President and CEO Edward Hightower and Chief Financial Officer Adam Kroll violated federal securities law because they made false and misleading statements about the status of the company’s relationship with Foxconn.
The complaint, filed by investor and lead plaintiff Bandor Lim, seeks unspecified damages to be awarded at trial.
According to the lawsuit, Hightower and Kroll “repeatedly made and/or caused Lordstown to make false and/or misleading statements, or in some instances, representing that Foxconn was working cooperatively with Lordstown when in fact, the partnership soon stalled after the execution of the JV agreement.”
The complaint represents investors who acquired shares of Lordstown Motors between Aug. 4, 2022 and June 26, 2023. The lawsuit alleges that during that time Lordstown executives knew that Foxconn was acting in bad faith and failing to live up to its commercial and financial commitments to Lordstown Motors but omitted facts to investors.
It wasn’t until June 27, 2023, the day Lordstown Motors filed for Chapter 11 bankruptcy and filed a lawsuit against Foxconn, that investors became aware that the partnership had been in jeopardy for a long period of time, and that “Foxconn’s conduct toward Lordstown had been anything but cooperative,” the lawsuit said.
Specifically, court documents show that during this period, Foxconn failed to grant Lordstown Motors access to design data, never participated in budget or timeline negotiations and failed to engage with the company on “the most basic items,” the complaint said.
“Lordstown knew but failed to disclose that the financial life of the company was imperiled by its strained relationship with Foxconn and if the partnership failed, the company faced bankruptcy,” court documents state.
The complaint points to a statement by Hightower on Aug. 4, 2022, where the CEO stated that he spent two weeks with Foxconn executives including Foxconn CEO Young Liu. Hightower noted that he had meetings on how to best leverage the JV and its first vehicle program, which “we hope to announce in the coming months,” court papers say.
The lawsuit claims that Hightower’s comments “misled the investing public into believing Foxconn and Lordstown were working cooperatively when that was anything but the case.”
In May 2022, Lordstown sold its plant to Foxconn for $230 million and simultaneously entered into contract manufacturing and joint venture agreements to develop Lordstown’s Endurance pickup and future EV products with the Taiwanese tech company. Under the JV, the parties were to work together on new EV products based on Foxconn’s MIH platform.
In November, the JV was replaced by an equity agreement in which Foxconn would invest $170 million into Lordstown’s operation. “Due to Foxconn’s breach of the JV agreement, Lordstown executed a second agreement to replace the original agreement in an attempt to salvage the relationship,” court papers say.
The lawsuit alleges the undisclosed conduct of Foxconn began to take a financial toll on Lordstown Motors.
On March 7, Lordstown Motors stock, which traded on the Nasdaq exchange under RIDE, slid below $1 per share, causing Nasdaq to issue a delisting notification on April 19, notifying the company it had 180 days to bring its share price above the $1 minimum bid requirement.
That letter triggered a letter from Foxconn on April 21 informing Lordstown Motors that it would terminate the investment agreement because of the delisting notice and failed to confirm whether it would provide further investment in the company. Lordstown disclosed the letter on May 1.
The news caused share value to plummet 25% to 40 cents a share that day, court papers say.
Lordstown shareholders then approved a 1:15 reverse stock split to boost its share value but Foxconn still failed to move forward with a second round of investment in the company.
Lordstown filed Chapter 11 in Delaware on June 27, and filed suit against Foxconn for fraud, bad faith and repeated contractual breaches.
Copyright 2024 The Business Journal, Youngstown, Ohio.
