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Lordstown Motors executives sold shares before the trouble came to light, prior to reporting the results

Some top executives

Lordstown Motors Co., Ltd.

Ride 3.30%

According to a regulatory filing that disclosed the deal, it sold off its shares in an electric truck startup before reporting its financial results.

Securities lawyers and accountants say such transactions raise questions about the company’s internal controls, especially from the following perspectives: Its recent trouble..

Five executives, including the company’s president and former chief financial officer, sold more than $ 8 million in shares in the first three days of February, according to Filing.

Lordstown Motors, which was unveiled in October and plans to build a former electric truck

General Motors Co., Ltd.

The Ohio plant was the first listed company to announce year-end financial results in mid-March. According to FactSet, the quarterly net loss of 23 cents per share was more than double what analysts expected.

Two years ago, the startup hasn’t yet started producing its first model, the Endurance, a battery-powered pickup for commercial buyers such as businesses and fleet operators.

Chuan “John” Vaux, one of the executives overseeing the promotion division of Lordstown Motors, sold almost all of his vested interests (99.3%) on February 2, with 717 shares and over $ 2.5 million. Left a profit. Performance.

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Rich Schmidt, a former Tesla manufacturing executive who joined the company in 2019, sold 39% of its vested interests for $ 4.6 million in two days in February, according to company filings. A spokeswoman for the company said he used a portion of his earnings to expand another recently launched venture, a turkey hunting farm in Tennessee.

Three other executives, including a former chief financial officer of Lordstown Motors, who resigned last week, sold a small stake at about the same time in February, trading in the range of about $ 250,000 to $ 400,000. The filing shows that it was.

Four of the five executives refused to comment through a Lordstown Motors spokesman. The company also declined to comment on executive financial oversight. Julio Rodriguez, the fifth former Chief Financial Officer, was not asked to comment.

On June 14, the company said a special committee formed by the Lordstown Motors board of directors investigated the sale of executive shares and concluded that it was “created for reasons unrelated to the company’s performance.” It was.

Securities lawyers, accountants and analysts say such transactions are extremely rare. This was especially during a time when many other listed companies were banning executives from selling their shares.

Insider Score analyst Max Maggie provides investors with executive trading data and research services to guide investment decisions.

“”
“We don’t expect insiders to sell normally at that point in the quarter.”


— Max Maggie, Analyst at Insider Score

Most listed companies have a so-called blackout period that prevents business leaders from trading their shares outside of a pre-determined plan from the end of the quarter until the results are published.

These periods are intended to prevent the emergence of insider trading. Insider trading is the practice of executives using private knowledge of a company’s performance to trade before sharing it with the wider market. In a Deloitte 2020 survey, 98% of companies reported that they had a blackout period banning transactions by top officers on quarterly disclosures.

Daniel Taylor, a professor of accounting who runs the Forensic Analysis Lab at the Wharton School of the University of Pennsylvania, said:

According to lawyers and accountants, the trading patterns presented by Lordstown Motors executives in February and other stock sales in December also stand out in another way.

They say the size of the shares sold by some executives within the first few months of the company’s listing is unusual and could indicate investors a lack of confidence in the future performance of the young company.

Richschmidt, president of Lordstown Motors, who visited the White House last year, sold 39% of his vested interests for $ 4.6 million in two days in February, according to company filings.


Photo:

Carlos Barrier / Reuters

Startup businesses have been under close scrutiny in recent months since March. Report by short-selling Hindenburg Research This accused the company of misleading investors and facilitating fictitious pre-orders for the next truck.

The special committee is that some of the companies Pre-order statement Although inaccurate in some respects, the company said the other claims in the Hindenburg report were false and misleading.

The company’s practices have caught the attention of the Securities and Exchange Commission, which issued two summons related to the merger and official statement, the company said.Lordstown Motors Cooperate with the investigation..

Earlier this month, Lordstown Motors surprised investors and revised its first annual statement to include a warning that it may not be able to continue as a going concern due to lack of funds to start production. ..

Both Chief Executive Officer and Financial Officer Resigned last week, The company said. The company’s share price peaked at around $ 30.75 per share in mid-February and has fallen in recent months due to a number of challenges for the company. Friday’s share price fell 47% annually to close at $ 10.65.

All five executives’ transactions in early February occurred when shares were trading at $ 24 or more per share, company filings show. Similarly, they were carried out when news began to spread that prototypes of the first electric truck models ignited 10 minutes after a driving test in mid-January.

Lucid, Fisker, Rivian and Canoo are one of the well-funded startups competing to release new electric vehicles. The WSJ asked CEOs and industry insiders how new car companies can challenge Tesla’s market dominance and take over legacy car makers.Photo composition: George Downs

Lordstown Motors brought hope to many in the Mahoning Valley of Ohio when it planned to acquire GM’s huge assembly plant in 2019 and convert it to electric truck manufacturing. In late October, a new electric vehicle start-up was unveiled in a reverse merger with a special-purpose acquisition company (SPAC) as it was drawing attention and funding from Wall Street.

Investors generally expect executives to receive shares as part of a compensation package and eventually sell them, but investors generally hold significant shares in the company while they are at work. I want

When they want to sell Many executives use the 10b5-1 plan This allows you to schedule transactions in advance.These arrangements can provide protection against insider trading accusations, but these days Placed under close scrutiny From the SEC, as some investors have stated that they can be manipulated and abused.

The Lordstown Motors filings do not indicate that the transaction was under the pre-scheduled 10b5-1 plan. A spokesman for Lordstown Motors declined to comment on whether executives used such a plan.

Wharton’s Taylor pointed out that the grouping of stock trades carried out by several Lordstown Motors executives in February was also unusual. In some cases, executives may monetize their shares to fund large purchases and down payments, but doing so five at the same time stands out, he said.

In the case of Mr. Schmidt, president of Lordstown Motors, his stake sale helped raise money for another venture. Three weeks after the February sale, Schmidt founded another business, Rainbow Rock Farm LLC.

Real estate records show that Schmidt and his wife also made a $ 519,000 land purchase at the time. The Rainbow Rock Farm website shows that it offers turkey hunting, black Angus beef, hay rides, and blueberry hunting on 363 acres of land in Tennessee. A spokesman for Lordstown Motors said Schmidt’s wife runs the farm. She wasn’t asked to comment.

Following the resignation of CEO and Treasury Officer last week, Schmidt received an additional 500,000 new stock options. Schmidt’s option to buy shares for $ 11.41 per share will vest in three years if the company’s share price exceeds $ 20 for 30 consecutive days. The remaining executives who sold their shares in February each received a 200,000 stock incentive.

Lordstown Motors Timeline

  • October 26, 2020-Lordstown Motors went public after completing the merger with DiamondPeak Holdings Corp. Stock price closes: $ 18.97
  • December 11, 2020-President Richschmidt sells 8.7% of his vested interests for $ 1 million.Closing price: $ 19.58
  • December 14-16, 2020-Executive Chuan Vo will sell 49.4% of its vested interests for $ 2 million.Closing Stock Price: $ 19.36
  • December 31, 2020-The company’s fiscal year ends. Closing Stock Price: $ 20.06
  • January 13, 2021-During the first road test in Michigan, a prototype truck from Lordstown Motors ignited.Closing price: $ 25.82
  • January 27, 2021-A fire was reported in a printed version of the local newspaper Farmington Press.Closing price: $ 26.06
  • February 2-4, 2021-Mr. Vo will sell 99.3% of the remaining stake in the company for $ 2.5 million. Schmidt will sell 39% of the remaining vested interests for $ 4.6 million. Three other executives, including the former CFO, have sold approximately $ 250,000 to $ 400,000 in shares.Closing price: $ 27.41
  • March 12, 2021-Short-selling Hindenburg Research publishes a critical report on Lordstown Motors’ business.Closing price: $ 14.78
  • March 17, 2021-Lordstown Motors reported its fourth-quarter and full-year financial results and disclosed the SEC’s investigation.Closing Stock Price: $ 15.09
  • May 21, 2021-Lordstown Motors needs to report first quarter earnings, warn of increased cash burns and raise funds.Closing price: $ 9.58
  • June 8, 2021-Lordstown Motors amends its full-year 2020 performance and amends its submission with a going concern notice.Closing Stock Price: $ 11.22

Write to Ben Foldy Ben.Foldy@wsj.com

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Lordstown Motors executives sold shares before the trouble came to light, prior to reporting the results

Source link Lordstown Motors executives sold shares before the trouble came to light, prior to reporting the results

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