Lordstown Motors was accused of misleading investors about the sales potential of its EV image

The Securities and Exchange Commission has charged Bankrupt Lordstown Motors has misled investors about sales prospects for its Endurance electric pickup truck.

Lordstown has agreed to pay $25.5 million as a result — money the SEC says will be used to settle several pending lawsuits against the company.

“We contend that, in the highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown delivered on the true needs of 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 undermine the ability of investors 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 process of filing for Chapter 11 bankruptcy. Steve Burns recently bought a lot of assets related to Endurance and is using it to develop a new startup called LandX. He is not specifically charged in the SEC procedure.

“Although I have not been charged by the SEC, they have falsely alleged my actions in their settlement today with Lordstown Motors,” Burns said in a statement released to TechCrunch. “I absolutely reject the suggestion that my actions involved wrongdoing. Truth and truth should matter. This is not how our system is supposed to work.”

According to the SEC, Lordstown and its founder Steve Burns not only misrepresented how many Endurance orders, but also lied about obtaining all the parts needed to build the truck.

“These announcements told investors that Lordstown would be the first to be sold with an electric pickup truck aimed at the commercial fleet market, and Lordstown already had a customer demand base proven by tens of thousands of ‘pre-orders’ from business customers. of the ship,” the commission writes in the process of declaring charges. “Knowing that this first advantage would be critical to the company’s success, Lordstown and Burns misrepresented the actual status of the original truck orders, whether Lordstown had access to the critical parts needed to manufacture the trucks, and when the company would be able to deliver the trucks to customers. .”

The SEC states that Lordstown’s sales team began contacting potential ship customers in early 2020 and asking them to sign non-binding letters of intent to purchase Endurance. The company then turned around and represented the letters as prior orders in public statements and regulatory filings.

Projecting a large order book was necessary to make the startup appear legitimate, and at one point the SEC says Burns “directed the Lordstown team to get advance orders from customers to increase the total amount because the advance orders were.
‘(r)very important to the investment community and to our potential clients.’”

But Lordstown’s sales team “included many individuals who had no sales experience in the automotive industry, (and) were given no instructions or guidance to determine whether a customer was a commercial fleet customer,” the SEC writes. By January 2021, Burns was placing 100,000 orders for the Endurance, which he said was “unprecedented in automotive history.”

It all came crashing down three months later, when the short-selling research firm Hindenburg Research published a report on Lordstown claiming that many of the original orders were fake. An internal investigation by Lordstown’s board of directors found that this was largely true, as one alleged major buyer “did not appear to have the resources to complete a large truck purchase,” according to the SEC’s account of events. An internal investigation also found many other customers had only made “promises that appeared too vague or weak” to be included in the overall count.

Finally, between 40% and 71% of initial orders were misleading. Burns’ comments that the instructions were “too heavy” and “too sticky” were also misleading.

Lordstown had said when it went public in 2020 with a special purpose purchasing company (SPAC) that it would gain access to parts from GM, which sold the plant to start-up and provided financial support. It was supposed to be another factor in justifying Lordstown’s business. But it wasn’t, according to the SEC.

Instead, “the parts were manufactured by GM suppliers under GM’s approval, which was a difficult, time-consuming process with no certainty as to whether GM would ultimately authorize Lordstown to use the parts,” according to the order. Lordstown’s management knew this before completing the SPAC merger. An official told Burns in October that it had approval for only four of the 90 parts it had requested and that Endurance’s schedule was “now in jeopardy” as a result.

In fact, GM told Lordstown and Burns in December of that year that Lordstown’s request for parts could overwhelm the automaker’s supply chain and told them to look for alternatives. But Lordstown continued to promote in regulatory filings that it had access to those parts, and Burns said in a November CNBC interview that GM had “opened their barrel parts.”

“Barrel parts are very valuable to us,” he said.

The SEC says that not only was this misleading, but Lordstown had to get parts from other suppliers, adding $150 million to the cost of the Endurance plan.

Through it all, Lordstown and Burns kept announcing a September 2021 ship date, and it stuck to that date to promote the idea of ​​being the first electric pickup truck on the market — even though it knew internally it couldn’t meet that date. , according to the SEC.

This story has been updated to include information from Steve Burns.