Update: SEC Charges Lordstown Motors with Misleading Investors
Editor’s note: This story has been updated to include comments from former Lordstown Motors CEO Steve Burns.
WASHINGTON – The U.S. Securities and Exchange Commission has charged Lordstown Motors Corp. with misleading investors about the sales prospects of Lordstown’s flagship electric pickup truck, the Endurance, according to a press release.
Lordstown, which filed for bankruptcy in 2023, went public by merging with a special purpose acquisition company, or SPAC, in 2020.
According to regulators, Lordstown exaggerated the demand for the Endurance, claiming the company had received more than 100,000 nonbinding “pre-orders” for the vehicle from commercial fleet customers when, in reality, most of the pre-orders came from companies that did not operate fleets or intend to buy the truck for their own use. The SEC’s order also found that Lordstown misrepresented the company’s time line for delivering the Endurance by failing to account for production delays partially due to Lordstown’s inability to access many critical parts.
“We allege that, in a highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold true demand for the Endurance,” said Mark Cave, Associate Director of the Division of Enforcement. “Exaggerations that misrepresent a public company’s competitive advantages distort the capital markets and foil investors’ ability to make informed decisions about where to put their money.”
The order finds that Lordstown violated certain antifraud, proxy and reporting provisions of the federal securities laws.
According to the order, the SEC specifically says that the company and former Lordstown CEO Steve Burns also “made materially false and misleading statements about Lordstown’s business in SEC filings and other statements.” Burns has not been charged.
The matter stems from statements the company and Burns made regarding “pre-orders” of the Endurance, the SEC said in their order. The order delineates statements by Burns and press releases issued by the company declaring that Lordstown Motors had secured more than 100,000 non-binding pre-orders for the EV pickup. In a press release dated Jan. 11, 2021, Burns is quoted as saying that “receiving 100,000 pre-orders from commercial fleets for a truck like the Endurance is unprecedented in automotive history,” according to the SEC.
However, the SEC special committee’s analysis stated that 71% of the 100,000 amount “was from intermediaries or influencers.” The amount also included a verbal indication of interest from a customer who agreed to an “influencer” memorandum of understanding, which was not executed at the time, the SEC order said. “This customer expressly informed Lordstown that it did not have a fleet and did not intend to buy any trucks,” the order stated.
“Lordstown and Burns’ statements about the increasing numbers of pre-orders from 27,000 to 100,000 were false or misleading,” the SEC said.
In a statement to The Business Journal, Burns said that regulators have “falsely characterized” his actions and denies any wrongdoing.
“Although I have not been charged by the SEC, they have falsely characterized my actions in their settlement today with Lordstown Motors,” Burns said in a statement. “I categorically reject the suggestion that my actions constituted wrongdoing. The facts and the truth are supposed to matter. This is not the way our system is supposed to work.”
Burns last year purchased the assets of Lordstown Motors out of bankruptcy for $10.2 million. The purchase has formed the basis of a new venture, LandX.
Without admitting or denying the SEC’s findings and subject to bankruptcy court approval, Lordstown agreed to a cease-and-desist order and disgorgement of $25.5 million, which will be deemed satisfied by payments of up to $25.5 million by Lordstown and other defendants to resolve certain pending class actions against them. Earlier this year, the SEC filed a $45 million creditors claim against the bankrupt startup.
The SEC also instituted a related, settled administrative proceeding against Lordstown’s former auditor, Clark Schaefer Hackett and Co.
The firm provided certain non-audit services, including bookkeeping and financial statement services, to Lordstown during its audit of the company’s financial statements when it was a private entity.
CSH then audited the same financial statements in connection with Lordstown’s merger with the SPAC and thus violated auditor independence standards of the SEC and the Public Company Accounting Oversight Board.
Without admitting or denying the SEC’s findings, CSH agreed to a censure, a cease-and-desist order, the payment of more than $80,000 in civil penalties, disgorgement, interest and certain undertakings to improve its policies and procedures.
The SEC’s investigation, which is ongoing, was conducted by Carolyn Winters, Mark Oh and John Higgins, with assistance from David Baddley, Suzanne Romajas and Peter Lallas, and supervised by Jeff Leasure, Kristen Dieter, Alistaire Bambach, James Carlson and Cave, the SEC said.
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