Probes, executive upheaval continue to tank SPAC-backed EV start-ups
Electric Last Mile SolutionsJames Taylor was the CEO and he wanted his company to remain separate from its competitors by remaining out of any controversies.
“We don’t have any lawsuits, no management issues that we are aware of. We’re delivering and keeping our nose clean,” said the former General MotorsCNBC interviewed an executive in November who called the approach of the start-up “conservative” as well as “anti-climactic.”
Taylor achieved this feat until last week. Chairman Jason Luo was also cofounder of the company. This happened after an internal probe into certain share purchase transactions.
The resignations caused several analysts to downgrade the stock, resulting in ELMS shares falling by 53%, with a further 50% on Wednesday. Stock is now down 17% to $2 per share.
ELMS’s troubles are not the first for EV startup companies that were publicized through SPACs (special purpose acquisition companies) in the past few years. Similar problems at other companies led to executives being expelled and investigations by both the Department of Justice and Securities and Exchange Commission.
The ELMS Urban Delivery will launch in late 2012 and is anticipated to become the first class 1 commercial electric car available on the U.S. marketplace. It will also be made at the Company’s Mishawaka facility, Indiana.
Electric Last Mile Solutions
“We’re in a place where the SEC and others have become deeply skeptical about SPACs,” said Priya Huskins, partner at Woodruff Sawyer, a consulting firm and a leading insurance broker in the SPAC market. SPACs don’t need to be exposed to scandal even the slightest bit, with self-dealing being one of the worst.
The market has been crushed by SPAC-backed IPOs in unprecedented numbers. In the New Year, speculative stocks that have little to no earnings are falling further in favor due to rising interest rates.
The proprietary CNBC SPAC Post Deal Index, which is comprised of SPACs that have completed their mergers and taken their target companies public, tumbled 23% in January — even more abysmal than the tech-heavy Nasdaq’s 9% loss, It was its most difficult month since March 2020.
SPACs, which are publically traded companies without any tangible assets except cash, are not considered to be real assets. These companies are created as investment vehicles for the purpose of raising capital and then merging with privately-held businesses.
Although it’s faster than traditional IPOs, many companies have been in financial and legal difficulties following a crackdown by the SEC last year. Chairman Gary Gensler.
Gensler “is completely focused on disclosures and transparency to retail investors in a post de-SPAC M&A environment,” securities attorney Perrie M. Weiner, a partner at Baker McKenzie in Los Angeles, said in an email to CNBC.
SEC has declined to comment whether an investigation was opened into ELMS. It has not yet disclosed the results of any investigation.
Start-ups in Electric Vehicles Nikola, Lordstown Motors, Canoo, Faraday Future Intelligent Electric, FiskerAnd Lucid GroupAll of them went public in SPAC agreements over the course of the past two-years. The federal probes have been disclosed by all except Faraday Future (Fisker) and Faraday Future. Nikola founder Trevor Milton, who is accused of fraud against investors in the company’s IPO in Manhattan on April 4, will face trial.
Lucid was the exception. The majority of shares have done poorly for investors, despite receiving initial pops upon their deal announcements. Lucid and all of their shares have dropped by double-digits this year. They are currently trading at 52-week lows.
Morningstar analyst David Whiston stated that “It’s going to prove difficult for them all to scale up” and warned previously. an EV-SPAC bubble. “It would not surprise me that some of those firms will either be sold or acquired over the next 10 years, or even sooner.”
Faraday Future announced last week a shakeup to its board. It renamed a chairperson and cut pay for two of the top executives. One of them was also suspended. Following an internal investigation, employees gave false statements to investors regarding Yueting “YT” Jia’s involvement in vehicle reservations and Yueting Jia as the founder of Faraday Future.
According to analysts covering the company, resignations from ELMS do not appear to have been caused by illegal activities. But, a public disclosure by ELMS to SEC suggests possible incorrect or misleading information regarding the purchases.
A securities filing by the Michigan-based startup stated in an announcement that it was subject to an investigation of its board and concluded that certain executives were involved.,Taylor and Luo purchased equity shares at significant discounts to the market value and did not obtain independent valuations until shortly before company officials announced a plan to become public in December 2020.
ELMS refused to make any other comments than the ones contained in its filing and press release. CNBC received an email Monday from a spokesperson saying that the board had accepted their resignations “in the best interests of ELMS stockholders”
Huskins explained that even though such purchases don’t constitute illegality, all involved must disclose and account for them.
Huskins stated that “you get the impression that the 8-K was opaque in what was happening,” citing an excerpt in Huskins’ filing that indicated that executives provided responses to the committee which were inconsistent with company documents.
Huskins claimed that the line is “the closest” you will ever find in an 8-K of a company calling its insiders liars.
ELMS warned investors that it would have to correct its financial statements and warn them not to rely on its quarterly earnings reports.
Taylor and Luo will remain in consulting positions with ELMS. Taylor receives $300,000 per year. They both had to forfeit millions of company shares. Taylor was required to forfeit 1.8million shares at $3.3million, while Luo was required to surrender six million shares of approximately $10 million.
Huskins stated that the ELMS Board is more concerned about keeping the two financial analysts, whom one analyst calls the “dynamic duo”, than the possibility of losing them.
Huskins commented that “it is quite surprising to see an annual consulting fee considering what they stated in the 8-K, the discrepancy between Mr. Taylor’s answers and the documentation.”
Huskins indicated that transactions could be brought to attention by the SEC, considering the lack of trust shown by SPAC regulators. According to Huskins, the current boom-and bust cycle of SPACs is reminiscent the 2000s IPO boom.
We saw a large bubble. The correction is underway. She said that over the long-term, only higher quality private businesses will be able to make it into public companies through SPACs. For capital markets, and SPACs to help companies go public, it is a positive thing to get a little more skeptical from the regulators and market.
– CNBC’s Yun LiContributed to the report.