SEC seeks $45 million from bankrupt Lordstown Motors

Bankrupt electric vehicle startup Lordstown Motors could face a $45 million fine for violating federal securities laws.

The U.S. Securities and Exchange Commission filed a claim for that amount last week in Lordstown Motors’ Chapter 11 bankruptcy proceedings, although the startup said it remains in settlement talks with the agency. If the SEC takes action, it would be the largest penalty against an electric vehicle startup since hydrogen trucking company Nikola settled its own case for $125 million in 2021. It could also put Lordstown’s creditors at risk, the company said.

The claims against Lordstown are the latest sign that the SEC’s numerous investigations into electric vehicle startups are coming to fruition, with it announcing a series of settlements and penalties in the space in 2023.

The SEC first began investigating Lordstown Motors in 2021, just days after short-selling research firm Hindenburg Research released a report outlining multiple allegations of fraud. One of Hindenburg’s core accusations is that Lordstown lied to investors about the number of reservations for its electric pickup truck.

Lordstown conducted its own internal investigation and ultimately determined that certain executives had indeed made misleading statements, prompting CEO and founder Steve Burns (as well as CFO Giulio Rodri Gus) resigned. But the SEC pressed ahead, issuing subpoenas along the way and continuing to investigate the startup’s conduct.

Lordstown has since struggled to recover and had to reach a deal with iPhone maker Foxconn to sell the Ohio manufacturing plant it purchased from General Motors. The startup commissioned the Taiwanese manufacturer to build pickup trucks, but only a few were shipped before Lordstown Motors filed for Chapter 11 bankruptcy protection in June 2023 and sued Foxconn.

Lawyers for Lordstown Motors revealed early in the bankruptcy proceedings that the company has entered into confidential settlement talks with the U.S. Securities and Exchange Commission. As those talks continue until the end of 2023, a deadline for creditors to finalize insolvency proceedings against the startup’s claims begins to approach. Lordstown and the SEC requested and received two different postponements to “continue discussions in a productive manner,” according to the filing. The SEC ultimately filed this claim on January 4, one day before the revised deadline, seeking “[m]Provides one-time remedy for violations of federal securities laws. “

Lordstown Motors said in a regulatory filing this week, “[a]Any recovery by the SEC would reduce recovery by the company’s shareholders,” which will dispute the $45 million claim if a resolution cannot be reached with the agency. Lawyers for Lordstown Motors and the SEC did not immediately respond to requests for comment.

The U.S. Securities and Exchange Commission has investigated nearly every electric vehicle startup that went public in the wave of SPAC mergers that rocked the industry over the past few years, and even some that didn’t go public. Last year it ended many of those events.

Hydrogen trucking company Hyzon paid a $25 million fine after the SEC found that the startup said it sold 87 vehicles in 2021 when in fact it sold none. Hybrid powertrain maker Spruce Power (formerly XL Fleet) has to pay an $11 million fine for promoting sales forecasts of more than $1 billion during the merger process, which the SEC said were misleading. As part of a settlement with the agency, electric vehicle startup Canoo paid a $1.5 million fine and two of its former top executives were charged separately.

Some investigations — such as those into Lucid Motors or embattled electric vehicle startup Workhorse — have been dropped without any enforcement action. The SEC also never announced a resolution of its investigation into Electric Last Mile Solutions, which filed for bankruptcy in 2022. One of the only remaining investigations is into Faraday Future, which the SEC has been investigating since March 2022.