Justice Department is probing Lordstown Motors
Lordstown Motors became one of several electric-vehicle upstarts to go public last year
The Justice Department is probing embattled electric-truck startup Lordstown Motors Corp., according to people familiar with the matter.
The inquiry into Lordstown Motors is being handled by the U.S. attorney’s office in Manhattan and is in early stages, the people said. The Securities and Exchange Commission is also looking at the company, Lordstown Motors has previously said.
The SEC first requested information from Lordstown Motors in February and has issued subpoenas regarding Lordstown Motors’ move last year to become a public company and its representations about preorders, according to company filings. Lordstown Motors has said it is cooperating with the SEC’s investigation.
A spokesman for Lordstown Motors didn’t comment on the Justice Department’s probe. Shares in Lordstown Motors fell after The Wall Street Journal’s report on the probe, trading down around 9% in Friday morning trading to $9.42.
The criminal probe is the latest challenge for the Ohio-based vehicle maker, which has been racked with months of bad news as it approaches a September target to start limited production of a full-size electric pickup truck called the Endurance.
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Lordstown Motors took over a former General Motors Co. plant in 2019 before becoming one of several electric-vehicle upstarts to go public last year through a merger with a special-purpose acquisition company, or SPAC. The companies’ shares initially skyrocketed as investors wagered on the industry move toward electric vehicles and sought companies capable of mimicking Tesla Inc.’s meteoric stock performance last year.
Since the initial fervor, shares of many of the companies have declined as some have disappointed investors with their early results as public companies. Lordstown Motors now joins Nikola Corp. as the second of those startups probed by the Justice Department after drawing scrutiny from short sellers and financial regulators. Nikola is cooperating with its investigation, according to company filings. Others have also disclosed SEC inquiries, missed production targets or reported higher-than-expected costs.
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Five Lordstown executives conducted a series of stock sales in early February that led outside accountants and securities lawyers to question the company’s internal controls over its executives’ trading. Those sales preceded the company’s sharing financial results from its first quarter as a publicly traded company with the market, results that underperformed analysts’ expectations. The company said a special committee of its board of directors found the trades were unrelated to the company’s performance.
In March, short seller Hindenburg Research alleged Lordstown Motors had overstated its preorders and was behind schedule in hitting its September target for starting production. The following week, the company opened its first earnings call as a publicly traded entity by disclosing the SEC inquiry.
In late May, the company said it was burning through cash faster than it had expected and needed to raise more capital. On June 8, Lordstown Motors restated its 2020 financial statements, amending a warning of doubts whether the company would be able to survive the next 12 months. The company’s chief executive and chief financial officer resigned five days later, the company said.
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A special committee formed by the company’s board commissioned an investigation conducted by Sullivan & Cromwell LLP that concluded that some statements regarding preorders had been inaccurate, the company said; the company said the committee found the Hindenburg report false and misleading in other respects.
Since Lordstown Motors announced the leadership transition and committee’s report on June 14, it has been trying to reset its course.
Independent board member Angela Strand is serving as executive chair while the company searches for a new chief executive. The company hired restructuring adviser AP Services LLC, a subsidiary of AlixPartners LLP, and named Becky Roof as interim chief financial officer. Ms. Roof, a managing director at AlixPartners, has specialized in shepherding companies including Eastman Kodak Co. , Hudson’s Bay Co. and Aceto Corp. through turnarounds.
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Lordstown Motors’ President Rich Schmidt said on a webinar with reporters on June 15 that the company had "basically binding" preorders signed with clients that accounted for roughly the company’s first full year of production. Two days later, the company issued a clarification that none of its reservations were binding.
Last week, the company hosted an investor week at the former GM factory, where it gave rides in its prototype trucks and showed off its manufacturing equipment.