Legal Problems Mount for Lordstown Motors
YOUNGSTOWN, Ohio – Executives and directors of Lordstown Motors Corp. and its predecessor, DiamondPeak Holdings Corp., violated federal securities law and have cost the electric-vehicle company at least $1 billion, according to new complaints filed in federal court late last month.
Two additional class-action derivative lawsuits, one brought in U.S. District Court in Youngstown and the other in U.S. District Court in Delaware, were filed two weeks after a management shakeup at Lordstown Motors, according to documents.
Investor Claude Patterson filed a complaint on June 25 in Delaware, just as the company was wrapping up Lordstown Motors Week, a five-day event that opened the company’s doors to investors, analysts and media. Shareholder An Thai followed with a similar lawsuit filed in Youngstown on June 30.
Lordstown Motors announced June 14 that its founder and CEO, Steve Burns, had resigned. Chief financial officer Julio Rodriguez also resigned.
Both suits name Burns and Rodriguez as defendants.
The company named Angela Strand as its new executive chairwoman to replace Burns until a new CEO could be found. Becky Roof was named its interim chief financial officer and Jane Ritson-Parsons was appointed chief operating officer, the company announced June 14.
According to the complaints, the plaintiffs are suing executives and former executives of Lordstown Motors and its predecessor, DiamondPeak Holdings Corp., on behalf of the company. Both name Lordstown Motors as a “nominal” defendant.
The complaints allege that the actions of these defendants have caused Lordstown Motors to lose at least $1 billion in value and have opened it up to legal expenses totaling millions of dollars.
“Defendants’ actions have caused substantial financial and reputational harm to Lordstown Motors,” the Delaware complaint alleges. The Delaware lawsuit names Burns, Rodriguez, President Rich Schmidt and 13 others as defendants. The Youngstown complaint names Burns, Schmidt, Rodriguez and 16 others.
The new complaints allege the defendants breached their fiduciary duties and defrauded the company, while certain defendants engaged in insider trading and cashed in shares when the company’s stock price was high, according to court papers.
Lordstown Motors announced June 14 that an internal investigation found that company executives made inaccurate public statements related to preorders for the Endurance. In March, short-seller Hindenburg Research issued a report alleging that executives misled investors and that preorders of the electric pickup were largely “fictitious.”
At one point, then-CEO Burns boasted that the company had more than 100,000 preorders for the Endurance.
Yet even after the findings, the new complaints say that the company continued to issue misleading statements, citing comments from Schmidt during a panel discussion June 15 hosted by the Automotive Press Association.
During that event, Schmidt told reporters that the company had “basically binding orders” for the Endurance that would carry production through May of 2022. Two days later, the company issued a statement walking back those comments, acknowledging there were no “binding” orders for the truck.
The company’s stock has plummeted in the wake of other developments such as an investigation by the Securities and Exchange Commission, the report of an early-stage inquiry by the U.S. Department of Justice and a restated financial report released June that indicated the company might not have enough funding to survive through next year.
DiamondPeak, a special purpose acquisition company, or SPAC, announced it would acquire Lordstown Motors in August 2020 with the intent of taking it public. On Oct. 26, the merger became official and Lordstown Motors was listed on the Nasdaq exchange under the ticker symbol RIDE.
The latest legal complaints allege the defendants misled investors by making false statements, or allowing false statements to be made, regarding preorders for the Endurance – the electric pickup under development at the company’s plant. The complaints also allege some of these defendants failed to establish adequate internal controls that led to financial losses at the company.
In all, Lordstown Motors or some of its past and present executives are defending 10 class-action cases filed in federal courts, an ongoing corporate espionage civil case in U.S. District Court in California, and another dispute in the Trumbull County Court of Common Pleas.
Lordstown Motors’ stock value has plunged 56% since the beginning of this year. On Friday, shares of the company closed at $8.94, down 13.5% over the past five trading days.
Meanwhile, sources familiar with the company’s operations say Lordstown Motors has started to place employees on layoff. The source, who declined to be identified, said several employees lost their jobs in the days following the resignations June 13 of Burns and Rodriguez.
According to the source, “dozens of engineers and supervisors” were let go as the new leadership assumed management of the company.
More were placed on layoff in the days following Lordstown Motors Week, held June 21-June 25, according to the source.
“It’s too bad, they have a good product and a good idea,” the source said.
However, another source said that just “a handful of people” that had ties to Burns and Rodriguez were fired after the shakeup. There were no additional layoffs to their knowledge, the source noted.
Lordstown Motors acquired the former General Motors plant here in November 2019 and pledged to revive the shuttered factory, which until March of that year produced the Chevrolet Cruze.
More than 1,500 worked at Lordstown at the time of its shutdown. Burns, Lordstown Motors’ founder and former CEO, said last October that his company could employ as many as 800 once production begins on the Endurance.
According to statements made last month by company president Schmidt, Lordstown Motors employed 600 between its Lordstown plant, an engineering operation in Michigan and a tech center in California.
Pictured: A beta model of Lordstown Motors’ electric-powered truck, the Endurance.
Copyright 2021 The Business Journal, Youngstown, Ohio.