The Securities and Exchange Commission has loaded Lordstown Motors bankrupt, misleading investors about sales prospects for its Endurance electric pickup truck.
As a result, Lordstown agreed to pay $25.5 million, money that the SEC says will go toward resolving a series of pending class-action lawsuits against the company.
“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,” Mark Cave, associate director of the SEC’s Division of Enforcement, said in a statement. “Exaggerations that misrepresent a public company’s competitive advantages distort capital markets and frustrate investors’ ability to make informed decisions about where to put their money.”
The SEC says its investigation into Lordstown Motors, which began in 2021, is ongoing. Lordstown is still in the Chapter 11 bankruptcy process. Steve Burns recently purchased most of the assets related to the Endurance and is using them to promote a new startup called LandX. He is not specifically charged in the SEC order.
“Although the SEC has not charged me, they have falsely characterized my actions in their settlement today with Lordstown Motors,” Burns said in a statement provided to TechCrunch. “I categorically reject the suggestion that my actions constitute an unlawful act. Facts and truth are supposed to matter. “This is not the way our system is supposed to work.”
According to the SEC, Lordstown and its founder Steve Burns not only misrepresented how many pre-orders it had for the Endurance, but also lied about having access to all the parts needed to build the truck.
“These statements told investors that Lordstown would be the first to market with a viable electric van aimed at the commercial fleet market, and Lordstown already had an established base of customer demand, evidenced by tens of thousands of ‘pre-orders’ from companies “commercial fleet customers,” writes the commission in the order in which the charges are announced. “Knowing that this first-mover advantage would be critical to the company’s success, Lordstown and Burns misrepresented the true nature of the truck’s pre-orders, whether and when Lordstown had access to the key parts it needed to manufacture the truck. The company could deliver the truck to customers.”
The SEC explains that Lordstown’s sales team began contacting potential fleet customers in early 2020 and asking them to sign non-binding letters of intent to purchase the Endurance. The company then pivoted and represented those letters as pre-orders in public statements and regulatory filings.
Giving the impression of a large order book was crucial to making the startup appear legitimate, and at one point, the SEC says Burns “directed Lordstown’s sales team to obtain additional pre-orders from customers to increase the quantity.” total because the pre-orders were
‘[r]Really important for the investment community and for our prospects.[ive] fleet customers’”.
But Lordstown’s sales team was “comprised primarily of people with no sales experience in the automotive industry, [and] “We did not receive any instructions or guidance to determine whether a customer was a commercial fleet customer,” the SEC writes. In January 2021, Burns was touting 100,000 pre-orders for the Endurance, which he said was “unprecedented in automotive history.”
It all started to fall apart three months later, when short-selling research firm Hindenburg Research published a report on Lordstown alleging that most of the pre-orders were fake. An internal investigation by Lordstown’s board of directors found this to be largely true, as an alleged large buyer “did not appear to have the resources to complete large truck purchases,” according to the SEC’s account of events. The internal investigation also found that many other clients had only provided “commitments that seemed too vague or weak” to be included in the total count.
In the end, between 40% and 71% of pre-orders were misleading. Burns’ comments that pre-orders were “very serious” and “very difficult” were also misleading.
Lordstown had said when it went public in a 2020 merger with a special purpose acquisition company (SPAC) that it would have access to parts from GM, which sold a factory to the startup and provided financial backing. It was supposed to be another legitimizing aspect of the Lordstown business. But according to the SEC, that was not actually the case.
Instead, “the parts were manufactured by GM suppliers under GM authorization, which was a complex and time-consuming process with no certainty as to whether GM would ultimately authorize Lordstown to use the parts,” according to the order. Lordstown management knew this before completing the SPAC merger. An officer told Burns in October that he had authorization for only four of the 90 parts he had requested and that, as a result, the Endurance’s momentum “is now in jeopardy.”
In fact, GM told Lordstown and Burns in December of that year that Lordstown’s request for parts could overwhelm the auto giant’s own supply chain and told them to look for a backup option. But Lordstown continued to tout in regulatory filings that it had access to the parts, and Burns said in an interview with CNBC in November that GM “has opened its parts bin.”
“The spare parts container is very valuable to us,” he said.
The SEC says not only was this misleading, but Lordstown had to source parts from other suppliers, adding an additional $150 million in costs to the Endurance program.
Despite all this, Lordstown and Burns continued to promote 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, even though it knew internally that it couldn’t reach that date. . , according to the SEC.
This story has been updated to include a statement from Steve Burns.