The electric vehicle startup Lordstown Motors may be facing a hefty penalty of $45 million for violating federal securities laws, according to a recent claim filed by the Securities and Exchange Commission in the company’s Chapter 11 bankruptcy proceedings.
The potential penalty would be the largest for an EV startup since the hydrogen trucking company Nikola settled with the SEC for $125 million in 2021. This development also raises concerns for Lordstown’s creditors, as stated by the startup itself.
The SEC’s claim against Lordstown is just one of the latest indications that the agency’s investigations into electric vehicle startups are coming to a head. In fact, in 2023 alone, the SEC has already announced numerous settlements and penalties within the industry.
The SEC’s inquiries into electric vehicle startups have been ongoing for several years, and it seems that they are finally reaching a resolution.
The SEC’s initial investigation into Lordstown Motors began in 2021, shortly after a report by short-selling research firm Hindenburg Research accused the startup of fraudulent activities. Specifically, the report alleged that Lordstown had misled investors about the number of pre-orders it had received for its electric pickup truck.
In response, Lordstown conducted its own internal probe, which revealed that certain executives had indeed made false claims. This resulted in the resignation of CEO and founder Steve Burns, as well as CFO Julio Rodriguez. However, the SEC continued to pursue the matter, issuing subpoenas and conducting further investigations.
As a result of these developments, Lordstown Motors struggled to recover and was forced to sell its manufacturing plant in Ohio to iPhone-maker Foxconn. Although the startup had planned for Foxconn to manufacture its electric pickup truck, only a few were produced before Lordstown filed for Chapter 11 bankruptcy and proceeded to sue Foxconn in June 2023.
During the bankruptcy process, Lordstown’s lawyers revealed that they had been engaged in confidential settlement talks with the SEC. As the talks continued, they began to intersect with the deadline for creditors to submit their claims against the company. In order to continue their negotiations, Lordstown and the SEC requested two extensions, which were granted. However, on January 4, just one day before the revised deadline, the SEC filed the $45 million claim, seeking financial remedies for the company’s violations of federal securities laws.
In a filing submitted this week, Lordstown Motors acknowledged that any recovery by the SEC would impact the company’s stockholders. If a resolution cannot be reached, the startup plans to dispute the $45 million claim. However, neither Lordstown Motors nor a lawyer for the SEC have provided any comment on the matter at this time.
The SEC’s investigations into electric vehicle startups have been ongoing since the wave of SPAC mergers that shook up the industry, including companies that did not go public through this process. Last year, the SEC announced the resolution of many of these investigations, including:
- Hyzon – paid a $25 million penalty for falsely reporting sales of 87 vehicles in 2021 when they had actually sold none
- Spruce Power (formerly XL Fleet) – paid an $11 million penalty for misleading investors about projected sales exceeding $1 billion during the merger process
- Canoo – paid a $1.5 million penalty as part of a settlement, with two former executives also facing separate charges
Some investigations, such as those into Lucid Motors and Workhorse, were dropped without any enforcement action. The SEC has also not announced a resolution for its investigation into Electric Last Mile Solutions, which filed for bankruptcy in 2022. The only remaining investigation is the one into Faraday Future, which has been ongoing since March 2022.
The electric vehicle startup industry has come under intense scrutiny from the SEC, and it seems that the agency is determined to hold companies accountable for any violations of securities laws.
