“It’s the lure of easy money, it has a very strong appeal.” — The Smuggler’s Blues by Glenn Frey
After convicting PSPC-sponsored Nikola Corp. founder Trevor Milton of defrauding investors, who will federal prosecutors target next among the shipping companies that have taken a similar route to public commerce?
They have options. A statement from U.S. Attorney Damian Williams suggests some targets of the Securities and Exchange Commission and Justice Department subpoenas may be cause for concern.
“Let this case serve as a warning to anyone who plays fast and loose with the truth to get investors to part with their money,” Williams said. “It won’t end well.”
At least two companies in the electrified trucking sector are under government control. The two rushed to go public via special purpose acquisition companies in 2020.
The Mahoning Valley Shuffle
Before Taiwan’s Foxconn bought most of the assets of financially troubled Lordstown Motors Corp., the startup founded by former Workhorse Group CEO Steve Burns had its moments of high-flying stock trading.
In 2019, Burns convinced General Motors to sell him a 6.2 million square foot gated car assembly complex in the Mahoning Valley in northeast Ohio. GM even gave Burns a mortgage. And he loaned her $20 million to retool the factory for her battery-powered commercial van called Endurance.
Struggling to find money to get started, Burns leaned into the SPAC frenzy, agreeing to merge with DiamondPeak Acquisition Company. Just 11 weeks later, Lordstown was publicly trading on the Nasdaq. The $1.6 billion transaction brought the startup $675 million in gross proceeds.
Retail investors piled in, following Burns’ claims that the company had attracted 100,000 orders. The stock touched $29 per share.
Enter Hindenburg Research, the short seller who claimed Milton built Nikola on “an ocean of lies.” In March 2021, Hindenburg claimed that Lordstown was a “mirage” of false orders and obfuscations. In July 2021, the Department of Justice issued subpoenas. The SEC earlier launched its own investigation.
Burns and chief financial officer Julio Rodriguez resigned a month earlier following an internal investigation. Burns’ successor, Daniel Ninivaggi, arranged the sale of the plant to Foxconn for $230 million. He agreed to let Foxconn under contract manufacture the Endurance. The truck began early production in September, nearly two years later than Burns expected.
GM, which forfeited a tentative $2 billion investment to build Milton’s Ghost Badger electric pickup after Hindenburg’s exposure, invested $25 million in cash and converted the factory’s mortgage of Lordstown into an in-kind contribution under the Lordstown SPAC agreement.
Other than a rumored sighting near the Lordstown exhibit at the Work Truck Show in Indianapolis in March, Burns said nothing. Neither the SEC nor the Department of Justice filed charges. Both investigations are continuing.
Insider Trading at ELMS
Another internal board investigation — this one to SPAC-backed electric delivery van startup Electric Last Mile Solutions — found co-founders Chairman Jason Luo and CEO Jim Taylor bought heavily discounted shares ahead of a merger with Forum Merger III Corp.
ELMS went public in June 2021 following a merger in December 2020. The transaction was valued at $1.4 billion. ELMS received gross proceeds of $379 million upon closing of the business combination.
The board retired the two veteran auto executives. Taylor had a long career at GM before leading Workhorse under Burns. Luo was a former president of Ford China.
The company accused Taylor of failing to redeem company stock purchased through insider trading that was part of his separation agreement.
The SEC launches a probe
In March, the SEC launched an investigation into ELMS’s split with Luo and Taylor and its ability to deliver on promises made to investors. At the time, ELMS said it would cooperate fully with the SEC’s investigation. In June, the company filed for Chapter 7 bankruptcy liquidation.
In September, Mullen Automotive agreed to pay $55 million for ELMS assets, including inventory, intellectual property and the former GM Hummer plant in Mishawaka, Indiana, according to TechCrunch. ELMS assembled vans imported from China with electric chassis before they ran out of money.
Nikola founder Trevor Milton guilty of 3 counts of fraud
Reports: Ministry of Justice investigating Lordstown Motors
Electric Last Mile Solutions files for liquidation
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