YOUNGSTOWN - As Lordstown Motors Corporation was preparing for what had been Monday’s planned release of its first-quarter financial report, a New York-based investment advisory firm filed a complaint that included some of the most scathing allegations made by investors in the half dozen class-action lawsuits filed to date against the startup electric pickup truck company located in the former GM Assembly Plant in Lordstown.

The complaint filed Friday in U.S. District Court in Youngstown by First New York Managed Accounts alleges that LMC failed to disclose that 100,000 pre-orders of its Endurance truck were fabricated; that LMC paid a consulting firm to generate pre-orders to “artificially” stimulate demand for the Endurance; that LMC had not accomplished the major innovation of hub motor technology, but instead purchased the technology from a Slovenian company; and that the hub motor technology that formed the basis for the Endurance drivetrain was subject to “significant undisclosed execution risk in development, production, and roll-out.”

Submitting a table showing it has handled millions of dollars worth of investment transactions, FNY has offered to become the lead plaintiff for five other similar class-action suits alleging violations of the U.S. Security and Exchange act by Lordstown Motors.   A lead plaintiff is appointed by the court that is most capable of representing the interests of the class members and is generally that plaintiff that has the largest financial interest in the relief sought by those involved in the class action.

Motions to appoint the lead plaintiff in the class actions are due Monday.

Also named as defendants are LMC CEO and Chairman Steve Burns, President Rich Schmidt, CFO Julio Rodriguez, Chief Production Officer Shane Brown, and Chief Engineer Darren Post.

Describing defendants Schmidt, Brown, Post, and Rodriguez as “company insiders”, the FNY complaint alleges that in early February, the four men “unloaded” nearly a quarter-of-a-million shares of RIDE stock worth $8.6 million. At the time the shares were sold, they ranged in value from $24.63 to $27.21.

The complaint states that by selling their shares “while in possession of material nonpublic information and prior to the revelation of the truth, these Defendants avoided losses of approximately $5,754,861 based on Lordstown's $11.38 per share stock price at the end of the Class Period”.

“When the fraud was ultimately revealed, the Company's stock price collapsed, and public investors lost hundreds of millions of dollars.” FNY says in its complaint.

FNY alleges violations of the U.S. Securities and Exchange Act on behalf of those who purchased shares of LMC’s RIDE stock and those of its predecessor DiamondPeak between August 3, 2020, through March 24, 2021.

The complaint says the case arises from what FNY characterizes as “an admitted fraudulent scheme”, which techstartups.com called “The Biggest Electric Vehicle Scams in History

The complaint alleges that the following information was later revealed to investors:

  • Endurance's "pre-orders" —the key measure in evaluating an EV's long-term business prospects —were completely fabricated;
  • The Company had paid a consulting group $50 per lead to place fake pre-orders for the Endurance;
  • Lordstown had licensed its hub motors from a tiny Slovenian company with limited resources and no history of success in hub motor development or production;
  • The hub motor technology was subject to significant undisclosed execution risks which posed significant threats to the development and rollout of the Endurance;
  • The Company had not developed its intellectual property in-house, as it claimed, but stole it from Karma Automotive ("Karma") that is itself subject to pending litigation;
  • Lordstown's announced production target of September 2021 was unrealistic because the Company lacked the technology and expertise to develop the product in that timeframe, and indeed is still making fundamental modifications to the Endurance, having built fewer than 10 prototypes to date;
  • The Endurance has not yet completed major testing as required by the Federal Motor Vehicle Safety Standards ("FMVSS") by the National Highway Traffic Safety Administration ("NHTSA");
  • On January 13, 2021, an Endurance test vehicle caught fire ten minutes after the test began, resulting in its destruction and necessitating a call to 911.

As an example of their contention that LMC has admitted that many of their prior claims regarding the Endurance were false, FNY cites a March 18, 2021 interview with CNBC where LMC CEO Steve Burns is alleged to have admitted his company did not "have a product yet" even though the company said it had a "near-production ready" plant and it "Remain[ed] on Track to Begin Production of the Lordstown Endurance in September 2021."

FNY says the alleged “misrepresentations and omissions” concerning the Endurance caused Lordstown's stock price to increase from $18.97 on October 26, 2020, the first day of trading, to a high of $30.75 on February 11, 2021.

Burns admitted during a March 17, 2021 investor conference call that LMC is the subject of a Security and Exchange Commission investigation. The public revelation came one month after LMC became aware of the investigation.

On February 12, 2021, Morgan Stanley analyst Adam Jonas questioned LMC’s highly touted statements concerning the commercial viability of its unique individual hub motor technology. Jonas remarked that Lordstown's "radical" new hub motor technology "has never been commercialized" and "following a series of channel checks on the propulsion tech, we believe investors would be exposed to significantly elevated execution risk,” according to the FNY complaint.

Jonas assigned Lordstown an overweight rating with a price target of $18. On this news, FNY says the price of Lordstown's common stock decreased 13.34% per share, or $3.84, from $30.75 per share on February 11, 2021, to close at $26.91 per share on February 12, 2021.

The FNY complaint alleges that the Endurance beta “skateboard” entered by LMC in the April 19th San Felipe 250 desert race in Baja, California was not a Lordstown Endurance EV, but a vehicle built by off-road engineering company Brenthel Industries, modified to accommodate the hub motors, battery and electronic control unit provided by LMC.

  Lordstown Motors

 

The truck completed less than 40 miles of the race due to battery consumption problems.

“Ironically, the other EV truck in the race—a home-made system—actually finished the race (albeit over the official allotted time), underscoring just how far Lordstown's components and system was from production much less being ready for actual use in a truck on or off-road,” FNY alleges. “Ironically, the comments reflect the issue that caused the truck to fail—the battery was massive and the combination of its massive size and weight coupled with the fact it could not hold a charge beyond 40 miles (and it could not be recharged during the race) caused the truck to fail just 40 miles into the race.”

The FNY complaint repeats allegations outlined in the five previous class-action lawsuits, including a tweet by Hindenburg Research purporting to show an Endurance breaking down during a commercial video shoot just days before LMC’s merger with DiamondPeak, as well as the much-publicized claim by LMC that it had 100,000 “pre-orders” for the Endurance which FNY says “simply did not exist.”

“All told, Defendants' misrepresentations and subsequent disclosure concerning the Endurance cost Lordstown investors more than $1.1 billion in value. As of the market close on May 13, 2021, the Company's stock was trading at $6.98 per share,” states FNY which says it believes thousands of investors have been impacted.

The lawsuit is asking for a jury trial to award unspecified compensatory and punitive damages.

Lordstown Motor’s public relations firm has not responded to 21 News’ requests for a response to FNY’s complaint.  In the past, LMC CEO Steve Burns has said the company would “vigorously” defend against the lawsuits and pledged to cooperate with the SEC investigation.

It is not known if LMC will provide any answers when it files its first-quarter earnings report after the market closes on Monday, May 24, 2021, or during a conference call scheduled for 4:30 p.m. the same day. 

The earnings release had been scheduled for Monday, May 17. However, on Friday the company said it would delay the report by one week.

LMC did not give a reason for the delay.

Late last year, LMC said it anticipated it would have 1,500 employees by the end of 2021.