Lordstown Motors Faces 11 Class Action Lawsuits
LORDSTOWN, Ohio – The list of shareholder lawsuits filed against electric-vehicle manufacturer Lordstown Motors Corp. and its current or former executives continues to grow.
The latest lawsuit was filed July 9 in U.S. District Court in Delaware, making it the 11th class-action complaint brought against the company or its executives since March. Seven of these complaints were filed in U.S. District Court in Youngstown and four of them are now consolidated. Four others were filed in Delaware.
Lordstown Motors has yet to answer any of the complaints in court.
Investor Evarista Sarabia alleges in the July 9 lawsuit – as do all previous complaints related to Lordstown Motors – that company executives and directors misled investors about preorders of Lordstown Motors’ inaugural product, the all-electric Endurance pickup.
Sarabia’s complaint is a derivative action, meaning the shareholder is suing executives or former executives on behalf of the company. Those named as defendants in the latest lawsuit include former CEO Steve Burns, former Chief Financial Officer Julio Rodriguez, President Rich Schmidt, Director David Hamamoto, and 13 other executives or former executives of the company and its predecessor, DiamondPeak Holdings Corp. Lordstown Motors is named as a nominal defendant.
A short-seller report published by Hindenburg Research March 12 alleged that then-company CEO Burns’ claims of 100,000 preorders were mostly “fictitious” and that the company lacked the financial resources to start production of the Endurance. Lordstown Motors’ stock tumbled more than 16% that day.
Lordstown Motors said in a restarted annual report for 2020 filed June 8 that it would require more capital to remain in business through next year. On June 13, Burns resigned from the company along with CFO Julio Rodriguez after an internal report released the next day found that certain executives had made inaccurate statements related to preorders.
Investors have alleged Lordstown Motors has lost about $1 billion in value since the stock peaked at $31 per share earlier this year, according to previous filings.
The latest court action alleges that Lordstown Motors’ top executives – including president Rich Schmidt – sold millions of dollars worth of company shares while the stock price was artificially high, documents say. The sales occurred before the U.S. Securities and Exchange Commission launched an inquiry into the company in February, which Lordstown Motors did not disclose until March.
A subsequent regulatory filing July 15 also confirmed that the U.S. Department of Justice has initiated an investigation into Lordstown Motors.
An internal report issued by a special committee June 14 found no wrongdoing on the part of the executives and the insider transactions “were made for reasons unrelated to the performance of the company.”
However, the latest complaint challenges the integrity of the special committee related to the executive stock sales, court documents show.
The special committee was composed of Hamamoto, and directors Jane Reiss and Dale Spencer, the complaint states. Hamamoto was among the directors who sold more than $16 million of stock, while Reiss and Spencer, both appointed by Burns and defendants in the latest lawsuit, hold 83,822 shares each, according to the complaint.
“Therefore, these directors are neither disinterested nor independent and could not have properly exercised their independent business judgment while sitting on the special committee,” the complaint states.
Aside from the 11 class-action suits, Lordstown Motors or its executives face a civil lawsuit in California alleging the company pilfered trade secrets from Karma Automotive, which it denies, and another complaint in Trumbull County Common Pleas Court filed by DTE Lordstown, alleging the EV startup owes it more than $2 million.
Lordstown Motors merged with special purpose acquisition company DiamondPeak Holdings Corp. and went public October 26. The company’s first vehicle, the Endurance pickup, is expected to be in limited production by the end of September.
Lordstown Motors stock traded at $8.80 per share by midday Wednesday, up 2.4% for the day. Since January, the company’s share price has plummeted more than 56%.
Copyright 2023 The Business Journal, Youngstown, Ohio.