Who Is Short Seller that Slammed Lordstown Motors?

YOUNGSTOWN, Ohio – Hindenburg Research is characterized by its founder as less of a short seller and more a team of investigative reporters looking into stock market malfeasance. 

Its work has led to Securities and Exchange Commission investigations, the expulsion of executives and, on Friday, claims that Lordstown Motors Corp. has misrepresented its preorder numbers and readiness for production.

So, who is Hindenburg Research?

Founded in 2017 by Nathan Anderson, the company produces investigative reports by digging through accounting and talking to former employees, analysts and industry insiders. It’s also a hedge fund that often takes a short sell position in the companies it reports on. Hindenburg reports have targeted a wide range of companies, from electric vehicle startups Lordstown Motors and Workhorse Group to international energy companies to health-care companies. 

“In general, we use some pretty traditional ways of screening for accounting red flags and the like. We also look for recidivists, or bad actors in management that have a history of stock promotion or securities fraud, or being associated with companies or businesses that have been charged with securities fraud or other kinds of white-collar crimes,” Anderson told Barron’s in September.

Among its high-profile reports is one on would-be Lordstown Motors competitor Nikola, detailing the belief that Nikola had overstated the capabilities of its technology. That report, released in September, eventually led to an investigation by the SEC, the ouster of Nikola’s founder and General Motors backing out of a deal to partner on an electric truck.

“We have gathered extensive evidence – including recorded phone calls, text messages, private emails and behind-the-scenes photographs – detailing dozens of false statements by Nikola founder Trevor Milton,” the report started. “We have never seen this level of deception at a public company, especially of this size.”

Last July, Hindenburg set its sights on Workhorse Group, an electric vehicle startup founded by current Lordstown Motors CEO Steve Burns that was named a finalist to build the Postal Service’s next generation delivery vehicle.

“We’re short $WKHS because we think there’s immediate 50% downside. The company has an astronomical valuation of ~$1.5B despite less than $100k in revenue last quarter. We see the chance of winning a material USPS contract as virtually zero. A reality check is on its way,” a tweet thread started. “Company insiders and key stakeholders seem to agree; they have been aggressively dumping shares over the past several weeks/months. We expect insiders to continue to unload.”

Read: Source Cited in Hindenburg Research Report Refutes Its Claims

“The only reason we’re any good at what we do, is because the team is inherently troubled by how broken the market is and how broken the financial system is. We want to do our part and fix it. We want to make a dent,” Anderson continued in the Barron’s interview. “For us, it’s not just about going deep enough for a trade, we want to go deep enough to hit beyond a reasonable doubt threshold.”

While Anderson says Hindenburg exists to “expose all of the things that enable fraud to pervade across the financial system,” as he told Barron’s, the company is still a short seller. Its report on Lordstown Motors discloses that Hindenburg has taken a short position in the company, though without knowing how much stock it’s bought or when, it’s hard to tell how much Hindenburg stands to earn.

Such reports are often met with a dose of skepticism by traders and the companies profiled largely rebuke the claims within. After Hindenburg released a report on Clover Health, the startup released a lengthy rebuttal from the CEO and president but, at the same time, said it was subject to an SEC investigation.

In the aftermath of Hindenburg’s report, the stock price of companies often drops. Clover’s price fell to $8.86 on March 12, down from the $13.95 on Feb. 3, the day before the report was released. Nikola’s stock price fell 11.3% to $37.57 on Sept. 10 – the day the Hindenburg report came out – and it currently sits at $16.96.

Over the course of Friday, Lordstown Motors’ stock fell nearly 15%, closing at $14.78.

“Sometimes there are things that are going on and sometimes it’s overblown. That’s how these things go,” says Patrick Russo, an adviser with Daprile Financial in Boardman. 

He adds that while Hindenburg often takes short-sell positions in the companies it reports on, the reports don’t necessarily mean the firm is manipulating anything. In its reports, Hindenburg states whether it has taken a position in the company and also includes a disclaimer that it is not an advising firm, though it believes its reporting is accurate.

“A lot of people out there put out reports. Kathy Wood publishes what her buys are. If a company does their research and they’re disclosing their position, I don’t see that as market manipulation,” Russo says. “But that’s a big discussion now: what is and is not considered manipulation. It’s not as black and white as you may think.”

In a story published in the aftermath of the Nikola report, Kelly Anne Smith wrote for Forbes magazine that it’s important to remember with such reports that the publisher has a vested interest in it.

“Though Hindenburg claims it has actual receipts of Nikola being fraudulent and deceptive, remember that Hindenburg’s primary aim is to profit from Nikola’s share losses by shorting the stock,” Smith wrote. “Since short selling always bets on profiting from sinking share prices – does that mean Hindenburg’s research report is to be trusted? Is the firm ‘shorting and distorting’ Nikola for its own benefit, or is it actually providing a public service by allegedly revealing the company’s bad faith?”

In his Barron’s interview, Anderson refutes the “bad faith” claim. He says Hindenburg and its five employees are “investigative journalists with a different business model, more than what we’re commonly referred to, as just short sellers.

“We’ve quietly blown up over a half dozen Ponzi schemes. We have submitted whistleblower filings on over two dozen private companies, private funds, and public companies. We just haven’t published on those. I think it confuses people because people assume we’re just in it for a trade,” he continued.

Locally, the response to Hindenburg’s claims is quiet. The Business Journal reached out to officials from the Youngstown/Warren Regional Chamber and Camping World – a company that partnered with Lordstown Motors to serve as a service station for Endurance pickups – and got no response. A spokesman for U.S. Rep. Tim Ryan declined to comment.

Mayor Frank Seman of Ravenna, who is quoted in the Hindenburg report, confirms that the city never preordered any vehicles from Lordstown Motors. The Hindenburg report noted that it had reviewed documents showing that the city had preordered 15 vehicles.

“All I did was write a letter of support for the plant,” Seman said. “We never ordered any vehicles and do not intend to order any at this time. We don’t have the funds to be the experiment.”

Lordstown Mayor Arno Hill also responded, downplaying the concerns.

“I can only tell you what I see and hear,” Hill said. “I see more cars in that parking lot every day. I see them revamping everything. They’re building the beta prototypes. … I know they have a place set aside for battery cell assembly and a place set aside for wheel hub motors.”

Company officials have been up front about the fact that the orders they’ve received are nonbinding but “felt they were good orders,” Hill continued. 

Efforts to contact Lordstown Motors CEO Steve Burns were unsuccessful.

However, Burns told The Wall Street Journal Friday that his company has been open about the fact that preorders are nonbinding. In its December regulatory disclosure, the company said it had no current customers or pending preorders and that there was no guarantee to convert those preorders to sales.

“If a guy signed a piece of paper that said ‘I think I can move X-thousand of them,’ we believe them. But it’s not in blood. It’s a nonbinding letter of intent,” he said.

Burns added that the company is still on track to begin production in September.

Copyright 2024 The Business Journal, Youngstown, Ohio.