Lordstown Motors charged with misleading investors about potential sales of EV pickups

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The Securities and Exchange Commission has accused bankrupt Lordstown Motors of misleading investors about sales prospects for its Endurance electric pickup truck.

As a result, Lordstown agreed to pay $25.5 million, which the SEC said will be used to resolve numerous class action lawsuits pending against the company.

“In the fierce competition to deliver the first mass-produced electric pickup truck to the U.S. market, we argue that Lordstown oversold the real demand for the Endurance,” Mark Cave, an associate director in the SEC's Division of Enforcement, said in a statement. Ta. “Exaggeration that misrepresents the competitive advantages of publicly traded companies distorts capital markets and undermines investors' ability to make informed decisions about where to invest their money.”

The SEC said its investigation into Lordstown Motors, which began in 2021, is ongoing. Lordstown remains in Chapter 11 bankruptcy. Burns recently purchased a large portion of the assets associated with Endurance and is using it to promote a new startup called LandX. He is not specifically charged in the SEC's order.

According to the SEC, Lordstown and its founder Steve Burns not only misrepresented the number of pre-orders for the Endurance, but also lied about having access to all the parts needed to build the truck.

“These statements reassure investors that Lordstown will be first to market with a viable electric pickup truck targeted at the commercial fleet market, and that Lordstown has received tens of thousands of pre-orders from commercial vehicles. ” said that it already has an established base of customer demand as evidenced by. fleet customers,” the commission wrote in its order announcing the rates. “Knowing that this first-mover advantage would be critical to the company's success, Lordstown and Burns were concerned about the nature of truck pre-orders, whether Lordstown would be able to obtain the key parts needed to build the trucks, and when. The company misrepresented what would be shipped. The company would be able to get the truck to the customer.”

The SEC said Lordstown's sales team began contacting potential fleet customers in early 2020 and asking them to sign a non-binding letter of intent to purchase Endurance. The company then reversed course and described these letters as pre-orders in public statements and regulatory filings.

Creating the impression that there was a large order book was critical to the startup's appearance of legitimacy, and at one point the SEC said Burns had “a large pre-order book. “I have directed Lordstown's sales team to obtain additional pre-orders from customers to increase the total amount.”
'[r]Very important to the investment community and our prospective clients[ive] fleet customers. ”

However, Lordstown's sales team is “mostly made up of people with no sales experience in the automotive industry. [and] “No instructions or guidance were received to determine whether a customer was a commercial fleet customer,” the SEC wrote. By January 2021, Burns touted 100,000 Endurance pre-orders, which he said was “unprecedented in automotive history.”

Three months later, everything started to fall apart when short-selling research firm Hindenburg Research released a report on Lordstown claiming that most of the pre-orders were fake. According to the SEC's case description, an internal investigation conducted by Lordstown's board of directors found this to be largely true, and that one of the alleged large-scale buyers “completed a large-scale purchase of trucks. “They didn't seem to have the resources to do so.” The internal investigation also found that many other customers had provided “promises that appeared too vague or insufficient” to be included in the total.

Ultimately, 40% to 71% of pre-orders were misleading. Burns' comments that pre-orders were “very serious” and “very sticky” were also misleading.

When Lordstown went public in 2020 through a merger with a special acquisition company (SPAC), it said it could get parts from GM, which would sell the factory to the startup and provide financial support. provided. That was supposed to be another legitimizing aspect of Lordstown's business. However, according to the SEC, that was not actually the case.

Instead, “the parts were manufactured by GM's suppliers with GM approval, but this is a complex and time-consuming process, and it is unclear whether GM will ultimately authorize Lordstown to use the parts.” “I was unsure,” the order states. Lordstown's management knew this even before completing the SPAC merger. An executive told Burns in October that only four of the 90 parts requested had been approved, and as a result the Endurance timing was “currently in jeopardy”.

In fact, GM told Lordstown and Burns in December of that year that Lordstown's parts demands could strain the auto giant's own supply department and told them to find backup options. But Lordstown continued to tout parts availability in regulatory filings, and Burns said in a CNBC interview in November that GM had “opened up the parts bin.”

“The parts bin is invaluable to us,” he said.

The SEC says this was not only misleading, but also required Lordstown to source parts from other suppliers, adding an additional $150 million in costs to the Endurance program.

Through all of this, Lordstown and Burns continued to advertise a September 2021 shipping date and stuck to that date to promote the idea of ​​being the first electric pickup truck to hit the market — internally that date. According to the SEC, even though they knew they wouldn't be able to reach .