The Securities and Exchange Commission (SEC) has taken action against Lordstown Motors Corp (OTC: RIDEQ), alleging the company misled investors regarding the sales potential of its flagship electric pickup truck, the Endurance.
The move follows Lordstown’s bankruptcy filing in 2023, after the company went public through a merger with a special purpose acquisition company (SPAC) in 2020.
According to the SEC’s settled order, Lordstown and its former Chairman and CEO, Steve Burns, are accused of making misrepresentations about the company’s plans to develop the Endurance electric pickup truck.
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Lordstown merged with a special purpose acquisition company (SPAC), raising approximately $675 million from investors. Misleading statements made by Lordstown and Burns publicly as well as in SEC filings include claims about Endurance’s development and customer demand, along with claims of having secured thousands of pre-orders and access to key parts needed for production.
Additionally, the SEC found Lordstown misrepresented the timeline for Endurance delivery, failing to factor in production delays, partly due to difficulties in accessing critical components.
Mark Cave, Associate Director of the Division of Enforcement at the SEC, commented, “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.”
The SEC’s order determined that Lordstown violated certain antifraud, proxy, and reporting provisions of federal securities laws. Without admitting or denying the findings, Lordstown agreed to a cease-and-desist order and disgorgement of $25.5 million, subject to approval by the bankruptcy court. This amount will be satisfied by payments of up to $25.5 million by Lordstown and other defendants to resolve specific class actions against them.
The carmaker is also accused of violating SEC rules by using an accounting firm that was not independent during the audit process. In a related proceeding, the government agency instituted action against Lordstown’s former auditor, Clark Schaefer Hackett and Co. (CSH).
The SEC found that CSH, while auditing Lordstown’s financial statements during its transition from a private entity to a publicly traded one, violated auditor independence standards by providing non-audit services to the company. Without admitting or denying the findings, CSH agreed to a censure, a cease-and-desist order, payment of over $80,000 in civil penalties, disgorgement, and interest, along with a commitments to enhance its policies and procedures.
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