In a pattern that is becoming familiar, Lordstown Motors, an electric vehicle company that recently merged into a publicly traded SPAC and that was the subject of an even more recent short seller report, has been hit with a securities class action lawsuit. The defendants named include only executives of the vehicle company and do not include any former officers of the SPAC. A copy of the March 18, 2021 complaint can be found here.



Lordstown Motors is in the business of developing and manufacturing light duty electric trucks, with its flagship planned vehicle known as “Endurance.” DiamondPeak Holdings Corp. is a special purpose acquisition company (SPAC) that completed an IPO in March 2019. On August 3, 2020, DiamondPeak and Lordstown announced they had agreed to merge in a transaction in which the merged company would be listed on Nasdaq under the Lordstown name. The merger closed on October 23, 2020. The combined company began trading on Nasdaq on October 26, 2020.


On March 12, 2021, short seller Hindenburg Research issues a report entitled “The Lordstown Mirage: Fake Orders, Undisclosed Production Hurdles and a Prototype Inferno” (here). Among other things, the report stated that “Lordstown is an electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities. The company has consistently pointed to its book of 100,000 pre-orders as proof of deep demand for its proposed EV truck. Our conversations with former employees, business partners and an extensive document review shot that the company’s orders are largely fictitious and used as a prop to raise capital and confer legitimacy.” According to the subsequently filed securities class action lawsuit complaint, the company’s share price fell approximately 16.5%.


On March 17, 2021, the company disclosed in an earnings call that it had received an inquiry from the SEC. According to the complaint, the company’s share price fell a further 9% in aftermarket trading on this news.


The Lawsuit

On March 18, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of Ohio, Youngstown Division, against Lordstown; Stephen Burns, Lordstown’s Chairman and CEO; Rich Schmidt, Lordstown’s President since November 2020 and Chief Production Officer since October 2019; and Julio Rodriguez, Lordstown’s CFO since September 2019. The complaint purports to be filed on behalf of investors who purchased Lordstown securities between August 3, 2020 (the date the merger with DiamondPeak was announced) and March 17, 2021 (the date the company disclosed the existence of the SEC inquiry).


UPDATE: On March 19, 2021, a second plaintiff filed a separate securities class action in the Northern District of Ohio (here); the second complaint names only the company and Burns as defendants, and it proposes a shorter class period – from October 26, 2020 (the date the merged company’s shares began trading) and March 17, 2021.


The complaint quotes from the press releases that DiamondPeak and Lordstown published at the time the merger was announced, as well as press releases when the merger closed. In addition, the complaint quotes from numerous public statements after the merger closed and before the publication of the short seller report.


The complaint alleges that the defendants made false and misleading statements or failed to disclose that: “(i) the Company’s purported pre-orders were non-binding; (ii) many of the would-be customers who made these purported pre-orders lacked the means to make such purchases and/or would not have credible demand for Lordstown’s Endurance; (iii) Lordstown is not and has not been ‘on track’ to commence production of the Endurance in September 2021; (iv) the first test run of Endurance led to the vehicle bursting into flames within 10 minutes; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover damages on behalf of the class.



By my count this lawsuit is the seventh SPAC-related securities class action lawsuit to be filed this year. Unlike many of the prior securities class action lawsuits that have been filed against operating companies after their merger with a SPAC (that is, after the deSPAC transaction), this lawsuit names as defendants only executives of the post-merger operating company; it does not name any of the former officers of the SPAC as defendants.


Despite this difference in who the complaint names as defendants, the complaint otherwise has many other features in common with prior SPAC-relates lawsuits. Perhaps most significantly, this lawsuit, like many of the prior SPAC-related lawsuits, relies heavily on allegations that first appeared in a short seller report.


As I noted in my post last week about the recent SPAC-related securities suit filed against XL Fleet, many of the recent SPAC-related lawsuits have been based on allegations first raised by short sellers. Thus, in addition to the lawsuits against Lordstown and XL Fleet, the SPAC-related lawsuits against Clover Health (here), QuantumScape (here), and Nikola Corporation (here) all followed in the wake of short seller attacks. Indeed, the lawsuit against Nikola followed a report by Hindenburg Research, the same short seller that published the report about Lordstown.


As I also noted in my XL Fleet lawsuit post, the Wall Street Journal recently reported that short sellers are actively targeting SPAC companies, and that short interest in post deSPAC transaction companies has surged this year. The one thing about the short seller reports is that the securities lawsuits soon seem to follow, basically based on nothing more than a simple repetition of the short seller reports’ allegations.


In addition, like many of the other recent SPAC-related lawsuits, this lawsuit involves a company in the electric vehicle industry. The fact is that electric vehicle companies have been the subject of a number of SPAC mergers in recent months, and many of these SPAC-merged companies have also been the target of short sellers’ reports – as a result of which many of these post-deSPAC transaction electric vehicle companies have also been the subject of securities class action lawsuits. Thus, Lordstown, Nikola, XL Fleet, QuantumScape, and Velodyne Lydar (about which refer here) have all been hit with securities suits, many of them just in the last few weeks.


The surge of securities litigation against electric vehicle companies is not limited just to post deSPAC transaction companies; other electric vehicle companies sues this year include Ehang Holdings (about which refer here), and Workhorse Group (here). Electric vehicle companies are attracting a lot of attention, perhaps not all of it welcome.


One Final Note: There is one feature of this lawsuit that as an NE Ohio resident that I find particularly interesting, and that is the fact that the plaintiff’s lawyers chose to file the complaint in the Youngstown Division of the Northern District of Ohio. That is, they chose to file the lawsuit right in Lordstown’s back yard.


Readers not familiar with Lordstown’s story may be interested to know that the company’s operations are based in the former Lordstown plant of General Motors. At one time, the Lordstown plant was one of the largest employers in NE Ohio. The decline of the plant unfortunately mirrors the overall decline in the economic fortune of the Youngstown region.


The establishment of this electronic vehicle company in the former GM facility has generally been viewed as a very positive development with potential to spark a revitalization of the region. There are a lot of people in the area that that have a lot of high hopes for the company. This lawsuit will look very different in the Youngstown courthouse than it might look, say, in a courthouse in Manhattan. To put this observation into perspective, I note that the filing of this lawsuit made the front page of the next day’s Cleveland Plain Dealer newspaper


The plaintiff’s lawyers get paid the big bucks to make these kinds of decisions, but if it had been up to me, I would have filed this lawsuit in Manhattan, rather than in Youngstown.