Lordstown Motors executives sold stock ahead of reporting results and before troubles came to light

Several top executives at Lordstown Motors Corp. sold off chunks of stock in the electric-truck startup ahead of reporting financial results, according to regulatory filings disclosing the transactions.

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Securities lawyers and accountants say such trades raise questions about the company’s internal controls, especially in light of its recent troubles.

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In all, five top executives, including the company’s president and its former chief financial officer, sold more than $8 million in stock over three days in early February, according to the filings.

Lordstown Motors, which went public in October and plans to build electric trucks at a former General Motors Co. plant in Ohio, reported year-end results for the first time as a listed company in mid-March. Its net loss of 23 cents a share for the quarter was more than double analysts’ expectations, according to FactSet.

The two-year-old startup has yet to begin production on its first model, a battery-powered pickup called the Endurance that is aimed at commercial buyers, such as businesses and fleet operators.

One of its executives, Chuan "John" Vo, who oversees Lordstown Motors’ propulsion division, sold almost all of his vested equity—99.3%—on Feb. 2, leaving him with 717 shares and proceeds of more than $2.5 million, the filings show.

President Rich Schmidt, a former Tesla Inc. manufacturing executive who joined the company in 2019, sold 39% of his vested equity over two days in February for $4.6 million, according to company filings. He used some of the proceeds to expand another venture that he had started recently, a turkey-hunting farm in Tennessee, a company spokesman said.

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Three other executives, including Lordstown Motors’ former finance chief, who resigned last week, sold smaller holdings around the same time in February with the transactions ranging between roughly $250,000 and $400,000 in value, filings show.

Four of the five executives declined to comment through a Lordstown Motors spokesman. The company also declined to comment on its financial oversight of executives. The fifth, former Chief Financial Officer Julio Rodriguez, couldn’t be reached for comment.

On June 14, the company said a special committee formed by Lordstown Motors’ board had looked into the executives’ stock sales and concluded they "were made for reasons unrelated to the performance of the company."

Securities lawyers, accountants and analysts say such transactions are highly unusual, particularly because they occurred during a period when many other publicly traded companies bar executives from selling shares.

"We wouldn’t expect insiders to typically sell at that time in the quarter," said Max Magee, an analyst at InsiderScore, a research service that provides executive-trading data to investors to help guide investment decisions.

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Most listed companies have so-called blackout periods that prevent business leaders from trading company stock outside of prearranged plans from some time around the end of a quarter to when results are released publicly.

Such periods are intended to guard against the appearance of insider trading, a practice where executives use nonpublic knowledge of the company’s performance to make trades before sharing it with the wider market. In a 2020 survey by Deloitte, 98% of companies reported having blackout periods prohibiting trades by top officers around quarterly disclosures.

"At best, it suggests the company has weak internal control over the trading of their officers," said Daniel Taylor, an accounting professor who runs the Forensic Analytics Lab at the University of Pennsylvania’s Wharton School.

The trading patterns exhibited by the Lordstown Motors officers in February, as well as other stock sales they executed in December, also stand out in another way, the lawyers and accountants say.

The size of the stakes sold by some executives within months of the company going public are unusual, potentially signaling to investors a lack of confidence in the young company’s future performance, they say.

The startup’s operations have been under intense scrutiny in recent months, following a March report by short seller Hindenburg Research that accused the company of misleading investors and promoting fictitious preorders for its forthcoming truck.

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The special committee acknowledged that some of the company’s statements about the preorders were inaccurate in certain respects but called the Hindenburg report’s other claims false and misleading, the company said.

The company’s practices have drawn the attention of the Securities and Exchange Commission, which has issued two subpoenas related to its merger and public statements, the company has disclosed. Lordstown Motors has said it is cooperating with the investigation.

Earlier this month Lordstown Motors stunned investors, amending its first annual statement to include a warning that it lacked the funds to begin production and might not be able to continue as a going concern.

Both its chief executive officer and its finance chief stepped down last week, the company said. Its stock peaked in mid-February at about $30.75 a share and has slid in recent months as challenges have piled up for the company. On Friday, the stock closed at $10.65, down 47% for the year.

The early February trades by the five executives all occurred when the stock was trading at more than $24 a share, company filings show. Similarly, they were executed as news was beginning to spread that a prototype of its first electric-truck model caught fire 10 minutes into a road test in mid-January.

Lordstown Motors had sparked hope for many in Ohio’s Mahoning Valley when it took over GM’s huge assembly plant in 2019 with plans to convert it for building electric trucks. In late October, it went public through a reverse merger with a special-purpose acquisition company, or SPAC, as new electric-vehicle startups were capturing attention and funds from Wall Street.

Executives typically receive stock as part of their compensation packages with the expectation that they will eventually sell, though investors generally like to see top executives hold on to significant stakes in their companies while on the job.

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When they do want to sell, many executives use 10b5-1 plans that allow them to schedule trades ahead of time. These arrangements can give them a defense against insider-trading accusations but have recently come under increased scrutiny from the SEC because some investors say they can be manipulated and are subject to abuse.

Lordstown Motors’ filings don’t indicate that the trades were conducted under prescheduled 10b5-1 plans. The spokesman for Lordstown Motors declined to comment on whether the executives used such plans.

Wharton’s Mr. Taylor pointed to the grouping of stock trades, which were executed by multiple Lordstown Motors executives around the same time in February, as also being unusual. In some cases, an executive might cash out a stake to fund a large purchase or down payment, but to have five do so at the same time stands out, he said.

In the case of Mr. Schmidt, Lordstown Motors’ president, his stock sale helped finance another venture. Three weeks after the February sales, Mr. Schmidt incorporated another business, Rainbow Rock Farm LLC.

Mr. Schmidt and his wife also made a $519,000 land purchase at the time, property records show. A website for Rainbow Rock Farm shows it offers turkey hunting, Black Angus beef, hay rides and blueberry picking on 363 acres of land in Tennessee. The Lordstown Motors spokesman said Mr. Schmidt’s wife runs the farm. She couldn’t be reached for comment.

Following last week’s resignation of the CEO and finance chief, Mr. Schmidt received another 500,000 in new stock options. The options, which would allow Mr. Schmidt to buy shares for $11.41 apiece, vest over three years if the company’s share price stays above $20 for 30 consecutive days. Each of the other remaining executives who sold shares in February received 200,000 in new stock awards.

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LORDSTOWN MOTORS TIMELINE

• Oct. 26, 2020—Lordstown Motors begins trading publicly after closing its merger with DiamondPeak Holdings Corp. Stock price at close: $18.97
• Dec. 11, 2020—President Rich Schmidt sells 8.7% of his vested equity for $1 million. Stock price at close: $19.58
• Dec. 14-16, 2020—Executive Chuan Vo sells 49.4% of his vested equity for $2 million. Stock price at close: $19.36
• Dec. 31, 2020—Company’s fiscal year ends. Stock price at close: $20.06
• Jan. 13, 2021—Lordstown Motors’ prototype truck catches fire during first road test in Michigan. Stock price at close: $25.82
• Jan. 27, 2021—Fire reported in print edition of the Farmington Press, a local newspaper. Stock price at close: $26.06
• Feb. 2-4, 2021—Mr. Vo sells 99.3% of his remaining vested equity for $2.5 million. Mr. Schmidt sells 39% of his remaining vested equity for $4.6 million. Three other executives, including the former CFO, sell between roughly $250,000 and $400,000 of stock. Stock price at close: $27.41
• March 12, 2021—Short seller Hindenburg Research publishes critical report about Lordstown Motors’ business. Stock price at close: $14.78
• March 17, 2021—Lordstown Motors reports fourth-quarter and full-year financial results, discloses SEC inquiry. Stock price at close: $15.09
• May 21, 2021—Lordstown Motors reports first-quarter earnings, warns of increased cash burn, need to raise funds. Stock price at close: $9.58
• June 8, 2021—Lordstown Motors restates its full-year 2020 results, amends filing with a going-concern notice. Stock price at close: $11.22

Write to Ben Foldy at Ben.Foldy@wsj.com