CLEVELAND — A shareholder lawsuit was filed Thursday against an electric truck startup company claiming it has defrauded investors by making spurious claims about the number of preordered trucks and the progress it has made in starting production at a former General Motors plant in Ohio.
The lawsuit filed by shareholder Chris Rico against Lordstown Motors Corp. in federal court in Youngstown seeks certification as a class-action complaint.
Lordstown Motors CEO Steve Burns acknowledged that the U.S. Securities and Exchange Commission is conducting an inquiry based on a lengthy and critical report issued late last week by the investment firm Hindenburg Research, which holds a short position on Lordstown Motors stock.
From inside the plant, watch as our army of robots weld the Betas and build the Endurance batteries. Shot on March 16, 2021, this is the Lordstown journey. #RideWithLordstown #Workforit pic.twitter.com/dQeqJHxuYA— Lordstown Motors (@LordstownMotors) March 17, 2021
Burns, speaking during the company’s first-ever earnings call on Wednesday, said the company’s board of directors has formed a special committee “to review matters” surrounding the SEC inquiry.
A company spokesperson did not respond to an emailed request for comment about the lawsuit on Thursday.
The complaint is largely based on the Hindenburg Research report that said Lordstown Motors has “no revenue and no sellable product” and has “misled investors on both its demand and production capabilities.”
The report and lawsuit said that according to a former employee, estimated production is three to four years away. Burns has said production would begin this September, with plans to ramp up their workforce in the area, from 500 employees to 1,500.
"Everybody would like that plant to succeed," Lordstown Mayor Arno Hill said. "It’s been moving forward. As far as all the controversy and everything, I guess I’m like everyone else and I’ll wait and see what happens."
The company has touted that it has presold 100,000 trucks to various fleets in the U.S. But those orders, according to the lawsuit, are non-binding.
“Receiving 100,000 pre-orders from commercial fleets for a truck like the Endurance is unprecedented in automotive history. I think you can see why we feel that we are about to revolutionize the pickup truck industry.” -CEO Steve Burns #RideWithLordstown https://t.co/Er8atiHusS pic.twitter.com/iMJXBbaC4e— Lordstown Motors (@LordstownMotors) January 11, 2021
On Thursday, Burns defended those numbers on CNBC.
"The preorders did exactly what they were supposed to do: gauge interest," he said. "That’s what everybody uses preorders for. They are always, by definition, non binding, no money down, cancellable."
The lawsuit said that according to documents, investors, business partners and former employees, “the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy.”
The Hindenburg report said a recently-announced $735 million deal for 14,000 trucks was to a purported buyer who doesn’t operate a vehicle fleet and is based out of a small apartment building in Texas.
In September, President Trump hosted Lordstown Motors at the White House and touted the startup as a success.
"The area was devastated when General Motors moved out," President Trump said at the time. "Beyond the plant, it's incredible what happened to the area. It’s booming, it’s absolutely booming."
Lordstown Mayor Arno Hill admitted the lawsuit doesn't phase him.
"I don't know how much validity there is to it," he said.
Instead, Hill told News 5 his community no longer depends on the plant as its main source of employment, pointing to projects such as the TGX HomeGoods distribution center currently under construction.
"I won’t say our future relies on Lordstown Motors," he said. "We look forward to them being successful. Right now, we're in a wait and see."
The company received unwelcome publicity in January when a prototype vehicle caught fire 10 minutes into its initial test drive.
The Associated Press contributed to this report.