SEC Charges Motor Company for Misleading Investors; Audit Firm for Independence Failures
The SEC charged a motor company for misleading investors about the company's plans to develop the first full-size electric pickup truck and separately charged the company's accounting firm for violating auditor independence rules.
According to the first Order, during and after merging with a SPAC, the company raised approximately $675 million from investors after it made false and misleading statements by telling investors that (i) the company would be first-to-market with a viable electric pickup truck targeted for the commercial fleet market and (ii) the company already had an established base of customer demand evidenced by tens of thousands of "pre-orders" from commercial fleet customers. The SEC found that the company and its CEO misrepresented (i) the true nature of the pre-orders for the truck, (ii) whether the company had access to the key parts it needed to make the truck and (iii) when the company would be able to deliver the truck to customers. The SEC also found that the firm filed financial statements audited by a purportedly independent accounting firm when that firm was not in fact independent. As a result, the SEC found that the company violated SA Sections 17(a)(2) and 17(a)(3) ("Fraudulent Interstate Transactions"), Exchange Act Section 13(a) and SEA Rules 13a-1 ("Requirements of Annual Reports") and 14a-9 ("False or misleading statements") and SEA Section 14(a).
According to the second Order, the SEC found that the public accounting firm that audited the company's financial statements and provided the company with non-audit services (by assisting management in preparing the financial statements and performing bookkeeping services), among other things, inaccurately represented that it was "independent" in the auditor reports. The SEC found the accounting firm engaged in improper conduct pursuant to Section 4C(a)(2) ("Appearance and practice before the Commission") of the Exchange Act and Rule 102(e)(1)(ii) ("Conduct") of the SEC Rules of Practice. The SEC found that the firm violated Rule 2-02(b) ("Accountants' reports and attestation reports") of Regulation S-X ("Financial Reports"), which in turn led to the issuer's violations of reporting requirements under Sections 13(a) and 13a-1 thereunder, and 14(a) and 14a-3 of the Exchange Act.
To settle the charges against it, the motor company agreed to (i) cease and desist from committing further regulatory violations and (ii) disgorgement of $25.5 million.
To settle the charges against it, the audit firm agreed to (i) cease and desist from committing further regulatory violations, (ii) a censure, (iii) pay a civil money penalty of $50,000, (iv) pay disgorgement of $27,822 and (v) prejudgment interest of $3,059.