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Lordstown Motor Corporation lied to investors about the demand and production capabilities of its electric trucks, inflating share prices and causing investors serious losses, a new class action lawsuit claims.
The nationwide class action lawsuit was filed in Ohio on May 13 by lead Plaintiff Raymond Romano, who alleges that the company and its executive team and board of directors violated the Securities Exchange Act by misleading investors.
In the fall of 2020, special purpose acquisition company DiamondPeak, which raised $250 million when it went public in 2019, identified electric vehicle startup Lordstown as a company to acquire, the claim states.
In June of that year, Lordstown revealed its full size, all-electric pickup truck — dubbed “Endurance”— in a ceremony that received national media attention. During the event, Lordstown’s CEO Stephen Burns heavily promoted the Endurance’s growth prospects, declaring that “we have our whole year, our first year of production already pre-sold,” according to the class action lawsuit.
By August, the two companies announced they had entered into a definitive merger agreement, where Lordstown would be the surviving company, the claim states. The joint press release said Lordstown had 27,000 pre-orders for the Endurance, representing $1.4 billion in potential revenue, which was touted as evidence of the significant demand for the electric truck by fleet customers, the class action lawsuit says.
The companies also said the vehicle would be in commercial production in the second half of 2021.
In numerous news interviews, Burns touted the purported popularity of the Endurance, quoting thousands of orders and saying that “we got customers really, really wanting the truck,” according to the class action lawsuit. Just weeks before going public, the companies said there were 40,000 pre-orders for the truck.
In their Proxy Statement, the companies claimed that pre-orders came primarily from fleet purchasers and Lordstown would be able to meet the lofty commercial production and sales milestones, according to the claim.
In October, the merger was approved by DiamondPeak shareholders and shares were listed at $18.97.
According to the class action lawsuit, Burns continued to quote a large number of pre-orders, telling Yahoo! Finance in February 2021 the company had hit 100,000 pre-orders for the Endurance and saying it was “unprecedented in automotive history.”
However, in March the truth came out when Hindenburg Research issued a scathing investigative report titled “The Lordstown Motors Mirage: Fake Orders, Undisclosed Production Hurdles, and a Prototype Inferno,” according to the claim.
“Based on extensive research, including ‘conversations with former employees, business partners and an extensive document review,’ the Hindenburg Report revealed that Lordstown ‘is an electric vehicle SPAC with no revenue and no sellable product’ that ‘misled investors on both its demand and production capabilities’,” the class action lawsuit states.
“The Hindenburg Report concluded that Lordstown’s book of 100,000 pre-orders for its proposed EV truck ‘are largely fictitious and used as a prop to raise capital and confer legitimacy’.”
Additionally, the Hindenburg Report estimated that the Endurance was in fact three to four years away from production, and the company had built fewer than 10 and had not completed any of the required testing and validation, according to the claim. The report also published pictures of an Endurance truck after it broke down and had to be loaded onto a tow truck during the filming of a commercial that had aired just days prior to the merger.
As the truth came out, share prices dropped down to $11.38 by late March, the claim says, and Lordstown came under investigation by the SEC.
Romano wants to represent anyone in the U.S. who purchased DiamondPeak or Lordstown common stock between August 3, 2020 and March 24, 2021. He is suing for violations of the Securities Exchange Act and seeks certification of the Class, damages, and a jury trial.
Lordstown isn’t the only environmental-focused startup facing legal action over allegedly lying to investors to increase share prices. Recently, recycling company PureCycle was hit with a class action lawsuit for allegedly lying to investors about its expected revenue and product – which the claim says was not proven and presented serious issues, even at lab scale.
Do you invest in new startups? Tell us about your experiences in the comments section!
Scott D. Simpkins of Climaco Wilcox Peca & Garofoli Co., LPA and Maya Saxena, Joseph E. White, III, Lester R. Hooker, Steven B. Singer, and David R. Kaplan Saxena White P.A.
The Lordstown Securities Exchange Act Violations Class Action Lawsuit is Romano v. Lordstown Motors Corporation, et al., et al., Case No. 4:21-cv-00994-JRA, in the United States District Court Northern District of Ohio.
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