Lordstown Motors’ Top Executives Resign After Board Investigation

The company’s top executive resigned after the struggling automaker released an investigation by its board.

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When Mary T. Barra, the chief executive of General Motors, was attacked by President Donald J. Trump for closing an Ohio factory, the solution was a start-up called Lordstown Motors.

The start-up bought the shuttered G.M. factory, in Lordstown, Ohio, that Mr. Trump wanted to see revived. It promised to bring manufacturing jobs back to a struggling part of a swing state just before a presidential election. And the fledgling business would be the ticket to riches for its founder Steve Burns, who fancied himself as the next Elon Musk.

But the early hoopla that surrounded Lordstown, which aims to make an electric pickup truck called the Endurance, has collapsed and left behind a business that is barely holding on. Mr. Burns and another top executive resigned on Monday after an investigation by the company’s board. Lordstown does not have enough money to start making its truck, a prototype of which burned down during testing in February and is undergoing more testing. And securities regulators are investigating the company and its claims about customer interest in its trucks.

All of this raises questions about when, if ever, the company will begin production, which it had once hoped to do in September. It also casts doubt on a number of start-ups that, like Lordstown, aimed to compete with Tesla, the electric car pioneer, and merged with blank-check companies to list their shares on the stock market without having to go through a conventional initial public offering and the scrutiny that process brings.

In the town of Lordstown, where people had hoped Mr. Trump might help revive the factory by browbeating G.M. and Ms. Barra, the mayor expressed disbelief.

“I was really kind of shocked,” Mayor Arno Hill said in a telephone interview. “I know that they’ve had negative press, a lot of negative claims, lawsuits. Right now I don’t know what to think. We’re hoping for the best, but if Lordstown Motors makes it, that’s great. If they don’t, you sure hope that somebody comes in and takes the plant over.”

Lordstown got as far as it did because many people in Washington and on Wall Street have been eager to support companies that promise to create manufacturing jobs and produce electric vehicles. For a time few people, including Mr. Trump, G.M. executives and many investors, seemed to be concerned that Mr. Burns, who previously ran another small electric vehicle business, did not have a track record of hiring thousands of workers or mass-producing automobiles at his previous companies.

In September, Mr. Trump even hosted Mr. Burns and a prototype of his pickup at the White House. And Vice President Mike Pence helped the company introduce its pickup truck last June.

G.M., which declined to comment on Monday, invested in Lordstown and still owns about 7.5 million shares in the company. That gave credibility to the start-up, and encouraged other investors to back it. Lordstown shares, which were trading above $25 in February, fell nearly 19 percent, to about $9.26 on Monday.

Last August, Goldman Sachs helped Lordstown reach a deal to merge with DiamondPeak Holdings, a SPAC, or special purpose acquisition company, created by a former Goldman banker whose specialty was real estate. The merger was completed in October, putting Lordstown on the Nasdaq stock exchange.

Goldman Sachs declined to comment.

“G.M. took a stake in it and it solved a political problem for them,” said Usha Rodrigues, a professor at the University of Georgia School of Law, who recently testified before a congressional committee on the dangers of SPACs. “Everyone just shrugs and hopes maybe it will be a home run and everything will be fine.”

Companies that sell stock in an I.P.O. and the Wall Street banks that help them go public are held to strict reporting standards, Ms. Rodrigues said. But since a SPAC has no operating business when it files for an I.P.O., it doesn’t have much to disclose. Then, when companies like Lordstown merge with SPACs, the deal bypasses that more rigorous standard of review.

Over the past year, SPACs have raised more than $100 billion from investors in the hopes of finding merger partners. But regulators have raised concerns that SPACs are set up to favor the deal sponsors and early investors at the expense of retail investors who often get in after a merger is announced.

Critics of SPACs and their deals with electric vehicle start-ups with dubious business plans said the problems with Lordstown and others have been evident to anybody who was paying attention.

Lordstown, for example, told investors that it had tens of thousands of “pre-orders” for its pickup truck, including from businesses that operate big fleets. But these were not binding orders, a fact highlighted by a report published in March by Hindenburg Research, a hedge fund that has bet against Lordstown’s stock.

Nathan Anderson, Hindenburg’s founder, said the hype around electric vehicles encouraged sponsors of SPACs “to bring these companies public well before they were ready and in many cases some of these companies will never be ready.” Mr. Anderson said his firm was still betting against shares of Lordstown.

Last week, Lordstown said in a securities filing that it didn’t have enough money to begin mass production and might not survive. Then on Monday, Mr. Burns and the company’s chief financial officer, Julio Rodriguez, resigned. Mr. Burns will receive $750,000 in severance, Lordstown said in a securities filing. An investigation by Sullivan & Cromwell, a law firm hired by a special committee of Lordstown’s board, the results of which were disclosed on Monday, confirmed “issues regarding the accuracy of certain statements regarding the company’s pre-orders.”

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Steve Burns, the chief executive of Lordstown Motors, resigned on Monday after an investigation by the company’s board.Credit…Ross Mantle for The New York Times

The company has also let go of several other executives who were seen as close to Mr. Burns, according to two people briefed on the matter but not authorized to speak publicly. They included Brittney Burns, Mr. Burns’s daughter, who had served as the company’s marketing director.

Mr. Burns, Ms. Burns and Mr. Rodriguez did not respond to requests for comment.

Sullivan & Cromwell, which served as an adviser on Lordstown’s merger with DiamondPeak, is also working with the company in connection with an investigation by the Securities and Exchange Commission. Regulators have sent at least two subpoenas to Lordstown and are focusing in part on that October merger and the company’s statements about orders.

One of the members of the board committee that ordered the law firm’s report was David T. Hamamoto, a former Goldman banker who created DiamondPeak and is one of Lordstown’s largest shareholders along with Mr. Burns. Mr. Hamamoto, who has another SPAC that is looking to merge with a business, did not respond to a request for comment.

Lordstown said it had appointed its lead independent director, Angela Strand, executive chairwoman while it looks for a permanent chief executive. Becky Roof, who will serve as interim chief financial officer, is an employee of AlixPartners, a large consulting firm with a history of helping restructure troubled auto companies.

Next week, Lordstown is scheduled to host an event at its factory to tell investors, analysts and others about its pickup truck. The company said Monday that the event would go on as planned.

Other electric vehicle companies that have completed or proposed SPAC deals have also had trouble living up to big promises and had to replace their top executives.

Trevor Milton stepped down last September as executive chairman of Nikola, which is developing heavy trucks that run on batteries and hydrogen, shortly after Hindenburg issued a report accusing him of making false assertions about the company. Nikola has rebutted some of Hindenburg’s claims but has acknowledged that some of its past statements were false.

And in April, Ulrich Kranz, the chief executive of Canoo, which is developing an electric van, a pickup truck and other vehicles, resigned. Canoo, which completed its SPAC merger in December, said last month that the S.E.C. had opened an inquiry into various aspects of its business.

The executive chairman of Canoo, Tony Aquila, said in an interview that it should not be surprising that regulators are taking a closer look at electric vehicle start-ups that merged with SPACs and that some companies have had to replace top executives. These businesses have joined the stock market much earlier in their existence than companies that pursued I.P.O.s and are going through growing pains.

“That’s the power of the SPAC, right?” Mr. Aquila said. “You can get to the public markets sooner — but that means you have to grow up in front of the public.”

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