The
As alleged by the
According to the settled order, Lordstown allegedly misled investors about demand for the Endurance, as well as the company's ability to deliver the vehicle as the first-to-market viable electric pickup truck for the commercial fleet market. Allegedly, Lordstown reported fictitious and nonbinding preorders for the Endurance to drive up demand, concealed delays in the supply chain and falsely claimed that deliveries would begin in
The
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Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act), both of which prohibit the offer and sale of securities based on material misrepresentations but notably do not require scienter but rather only proof of negligence
- Exchange Act Section 13(a) and Rules 13a-1, 13a-11 and 12b-20, thereunder based on the same alleged misrepresentations about demand, delays and deliveries, plus failing to include financial statements audited by independent auditors required in current and periodic reports
- Exchange Act Section 14(a) and Rules 14a-3 and 14a-9 in connection with misleading statements in proxy statements
- PCAOB Rule 3520 for failure to comply with the auditor independence requirements
- Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the
SEC's Rules of Practice for improper professional conduct - Section 13(a) and Rule 13a-1 and Section 14(a) and Rules 14a-3 for causing Lordstown's violations
- The
SEC and other government agencies can continue investigations and enforcement actions when a company enters bankruptcy. Although most legal proceedings against a debtor are stayed automatically and immediately upon the filing of a bankruptcy petition, (see 11 U.S.C. 362(a)), there is an exemption for actions or proceedings brought by a "governmental unit" to enforce its "police and regulatory power." See 11 U.S.C. § 362(b)(4). - This settled action highlights that public companies should be as vigilant in social media posts and traditionally less formal communications channels as they are in formal
SEC reporting. Failure to do so can be risky. - Enforcement's interest in SPACs remains unabated. As noted by this blog previously, the
SEC's "SPAC crackdown" continues to target SPAC sponsors and de-SPAC companies and executives. - It is worth noting that the settlement with CSH, Lordstown's auditor, included a violation of Rule 2-01 of Regulation S-X for lack of independence, among other charges, for allegedly providing prohibited non-audit services to Lordstown while also engaged in auditing Lordstown's financial statements, which were then used in connection with Lordstown's registration statements and periodic reports filed with the
SEC . This charge is a reminder that Enforcement remains focused on auditors and the post-SOX independence rules and regulations.
Without admitting or denying the
In a related settled administrative proceeding filed the same day, Lordstown's former auditor,
-
Rule 2-02(b) of Reg S-X by falsely certifying that an audit report was conducted in accordance with PCAOB standards
Without admitting or denying the findings, CSH agreed to cease and desist, be censured and pay more than
Key Takeaways
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