LORDSTOWN, Ohio – A third class action lawsuit has been filed against electric-vehicle manufacturer Lordstown Motors Corp., alleging the company perpetrated securities fraud by misleading investors over its assertions that it had secured pre-orders of its Endurance pickup truck.
The action was filed April 2 in U.S. District Court for the Northern District of Ohio on behalf of investor Sulayman Zuod.
Two earlier class action complaints filed in March were consolidated into a single case earlier this week.
The new lawsuit also names Lordstown Motors CEO Stephen Burns, President Rich Schmidt, Chief Financial Officer Julio Rodriguez and Michael Fabian, director of stamping operations, as defendants.
According to court papers, “defendants engaged in a scheme to deceive the market and a course of conduct that artificially inflated the prices of Lordstown common stock.”
Moreover, the lawsuit alleges that executives of the company unloaded their personal stock at when it stood at “artificially inflated” prices.
“With the price of Lordstown Class A common stock artificially inflated based on defendant’s false but positive statements, certain Lordstown senior executives and directors cashed in, selling more than 1.5 million of their personally held shares of Lordstown common stock as fraud-inflated prices reaping almost $27 million,” the complaint says.
Among those top brass shedding stock, the lawsuit says, was David Hamamoto, the CEO of DiamondPeak Holdings Corp., a special purpose acquisition company, or SPAC, which merged with Lordstown Motors on Oct. 22, 2020. That same day, Hamamoto sold 1 million shares worth $16.38 million, according to the complaint.
Other executives selling shares included Schmidt, who cashed in $6.3 million worth of stock between Dec. 11, 2020 and Feb. 3, 2021.
The legal action comes three weeks after short-seller Hindenburg Research issued a damaging report on March 12 alleging that Lordstown Motors’ boasts of preorders for its new electric pickup, the Endurance, were “largely fictitious.” The scathing report also questioned the company’s production schedules and whether it could produce its all-electric pickup truck, the Endurance, by September.
Hindenburg hit again on March 24, publishing photos of an alleged broken down Endurance on a tow truck during a commercial shoot last summer. The commercial aired several days before Lordstown Motors announced its merger with DiamondPeak.
After the report was released, Lordstown Motors Corp. stock fell 16.5% in a single day, burning investors who jumped in early after the company announced its merger with DiamondPeak in August 2020.
The merger was approved Oct. 22, 2020. Lordstown Motors began trading on NASDAQ under the ticker symbol RIDE on Oct. 26.
Under RIDE, Lordstown Motors’ stock peaked at $30.75 in February. By the close of trading on April 1, the stock had dropped to $12.05 per share.
According to the latest lawsuit, Lordstown Motors’ CEO Burns repeatedly made misleading statements relative to the company’s pre-orders. A press release dated the day the merger was announced on Aug. 3 quotes Burns as saying “to date, we have secured $1.4 billion of pre-orders.”
Instead, the orders were a “sham” the complaint says, quoting directly from the Hindenburg Research report.
Burns has since said that the company has consistently said that none of these pre-orders were binding contracts.
Last week, Lordstown Motors confirmed in a regulatory filing that the U.S. Securities and Exchange Commission requested in February documents and information related to the DiamondPeak merger and the company’s pre-orders.
Lordstown Motors’ CEO Steve Burns did not disclose the SEC inquiry until March 17 during a conference call with analysts, noting that the company was cooperating with the agency’s request. He then declined to comment further on the matter.
In its annual report, Lordstown Motors identifies “uncertainties related to litigation, regulatory actions and government investigations and inquiries,” among a long list of risks facing the company.
Burns has said that Lordstown Motors is still on track to produce the first all-electric pickup, the Endurance, by late September.
On Wednesday, the company released its first pictures and videos of the first two beta versions of the vehicle. These are trucks that are produced specifically for validation testing.
“This significant milestone – for the company and the EV industry – is a testament to the hard work, skill and work ethic of the 500 Lordstown Motors associates,” the company said in a statement.
Copyright 2021 The Business Journal, Youngstown, Ohio.
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