Bankrupt Lordstown could settle with SEC, intends to liquidate

Bankrupt Lordstown Motors Corp. has had confidential settlement talks with the US Securities and Exchange Commission, which has previously inquired about whether the electric vehicle startup misled investors in relation to its merger with a blank-check company when it went public in 2020.

Lordstown lawyer Thomas Lauria said during the company’s debut bankruptcy hearing in Delaware Wednesday that the SEC’s investigation could result in civil claims but it’s not yet known whether discussions will result in a settlement or future litigation. Lauria didn’t discuss the nature of the civil claims or details about the SEC’s investigation during the hearing.

The SEC opened an investigation into Lordstown in early 2021, after short-selling research firm Hindenburg Research published a report that alleged the EV startup and certain executives made false statements while pitching its merger with a so-called special purpose acquisition company, including about the number and validity of pre-orders for its electric pickup truck.

Since then, the agency has sent at least two subpoenas to the startup, requesting information about the merger and the pre-orders, and the US Attorney’s Office for the Southern District of New York is also investigating.

The SEC declined to comment.

Internal Probe

After the SEC began its probe, Lordstown started its own internal review, which ultimately determined that some executives did in fact mislead investors. Founder and former Chief Executive Officer Steve Burns resigned in 2021 as a result of that review, as did the company’s chief financial officer at the time.

Lordstown filed Chapter 11 bankruptcy earlier this week, an action that immediately pauses shareholder lawsuits and other pending litigation against the company. Lauria told a Delaware bankruptcy judge on Wednesday that Lordstown intends to liquidate and that the company will use its Chapter 11 breathing spell to repay creditors as much as possible.

The EV startup filed Chapter 11 amid a bruising dispute with iPhone maker Foxconn Technology Group over a deal to make pickup trucks for Lordstown at an assembly plant in Ohio. The Taiwanese manufacturer had said it was prepared to pull out of their production partnership, prompting the EV startup to warn it could fail if it was unable to resolve the conflict.

Lordstown has sued Foxconn for breach of contract and has alleged Foxconn consistently failed to honor its agreements and forced the vehicle maker into bankruptcy. Foxconn has disputed Lordstown’s allegations and said it reserves the right to take future legal action.

Foxconn lawyer Matthew Murphy said during Wednesday’s hearing that Lordstown’s allegations are baseless and that the EV startup was plagued by financial, legal and operational problems before its partnership with Foxconn.

Lordstown joins several other once-promising startups that have wound-up bankrupt after going public through a SPAC merger.

The bankruptcy is Lordstown Motors Corp., 23-10831, U.S. Bankruptcy Court for the District of Delaware.