The Securities and Exchange Commission has charged bankrupt Lordstown Motors with misleading investors about the sales prospects of its Endurance electric pickup truck.

Lordstown has agreed to pay $25.5 million as a result — money that the SEC says will go toward settling a number of pending class action lawsuits against the company.

“We allege that, in a highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold true demand for the Endurance,” Mark Cave, associate director of the SEC’s Division of Enforcement said in a statement. “Exaggerations that misrepresent a public company’s competitive advantages distort the capital markets and foil investors’ ability to make informed decisions about where to put their money.”

The SEC says its investigation into Lordstown Motors — which began in 2021 — is ongoing. Lordstown is still in the process of Chapter 11 bankruptcy. Steve Burns recently purchased the majority of the assets related to the Endurance and is using it to promote a new startup called LandX. He is not specifically charged in the SEC’s order.

According to the SEC, Lordstown and its founder Steve Burns not only misrepresented how many preorders it had for the Endurance, but also lied about having access to all the parts required to build the truck.

“These statements told investors that Lordstown would be first-to-market with a viable electric pickup truck targeted for the commercial fleet market, and Lordstown already had an established base of customer demand evidenced by tens of thousands of ‘pre-orders’ from commercial fleet customers,” the commission writes in the order announcing the charges. “Knowing that this first-mover advantage would be critical to the company’s success, Lordstown and Burns misrepresented the true nature of the pre-orders for the truck, whether Lordstown had access to the key parts it needed to make the truck, and when the company would be able to deliver the truck to customers.”

The SEC explains that Lordstown’s sales team started contacting potential fleet customers in early 2020 and asked them to sign nonbinding letters of intent to buy the Endurance. The company then turned around and represented those letters as preorders in public statements and regulatory filings.

Giving the impression of a large order book was crucial to making the startup appear legitimate, and at one point the SEC says Burns “directed Lordstown’s salesteam to obtain additional pre-orders from customers to increase the total amount because pre-orders were
‘[r]eally important to the investment community and to our prospect[ive] fleet customers.’”

But Lordstown’s sales team was “comprised mostly of individuals with no sales experience in the automotive industry, [and] were not given any instructions or guidance to determine whether a customer was a commercial fleet customer,” the SEC writes. By January 2021, Burns was touting 100,000 preorders for the Endurance, which he said was “unprecedented in automotive history.”

It all started crashing down three months later, when short-selling research firm Hindenburg Research published a report about Lordstown alleging that most of the preorders were fake. An internal probe conducted by Lordstown’s board of directors discovered that this was largely true, as one supposed large purchaser “did not appear to have the resources to complete large purchases of trucks,” according to the SEC’s account of the events. The internal probe also discovered many other customers had only provided “commitments that appeared too vague or infirm” to be included in the total count.

Ultimately, between 40% and 71% of the preorders were misleading. Burns’ comments that the preorders were “very serious” and “very sticky” were also misleading.

Lordstown had said when it went public in a 2020 merger with a special purpose acquisition company (SPAC) that it would have access to parts from GM, which sold a factory to the startup and provided it with financial backing. It was supposed to be another legitimizing aspect of Lordstown’s business. But it wasn’t really the case, according to the SEC.

Instead, “the parts were made by GM’s suppliers under GM’s authorization, which was a complex, time-consuming process with no certainty as to whether GM would ultimately authorize Lordstown to use the parts,” according to the order. Lordstown management knew this before completing the SPAC merger. One officer told Burns in October that it had authorization for just four of 90 parts it had requested and that the timing of the Endurance “is now in jeopardy” as a result.

In fact, GM told Lordstown and Burns in December of that year that Lordstown’s parts request could burden the auto giant’s own supply chain and told them to find a backup option. But Lordstown kept promoting in regulatory filings that it had access to the parts, and Burns said in a November CNBC interview that GM “has opened up their parts bin.”

“The parts bin is very very valuable to us,” he said.

The SEC says that not only was this misleading, but that Lordstown did have to source parts from other suppliers, adding an additional $150 million in cost to the Endurance program.

Through all of this, Lordstown and Burns kept promoting a ship date of September 2021, and it stuck to that date in order to promote the idea of being the first electric pickup truck to market — even though it knew internally it could not hit that date, according to the SEC.