SEC Files Settled Fraud Charges Against Former CEO of Lordstown Motors

SEC Charges Former Chairman and CEO of Lordstown Motors Corp. for Misleading Investors

The Securities and Exchange Commission announced settled fraud charges against Stephen Scott Burns, former Chairman and CEO of bankrupt automaker Lordstown Motors Corp., for misleading investors about “pre-orders” for Lordstown’s flagship electric pickup truck called Endurance.

According to the SEC’s complaint, Burns made misleading statements about Lordstown’s business in SEC filings and other public statements, including that Lordstown had an established base of customer demand evidenced by more than 100,000 nonbinding pre-orders from commercial fleet customers. As the complaint alleges, these statements were misleading because most of the pre-orders were not submitted by commercial fleet customers, but rather by companies that did not operate fleets or intend to buy the truck for their own use, thereby creating an unrealistic and inaccurate depiction of demand for the truck from commercial fleet customers.

“I’m with Roosevelt and Jack: Benefits of Mandatory Disclosure” Prepared Remarks before Columbia Law School Conference in Honor of John C. Coffee, Jr.

A few months shy of the SEC’s 90th birthday and 40 years since Jack’s paper, there still are those who would like to whittle away at the SEC’s disclosure regime.

To those who seek to reduce information available to investors, I stand with Roosevelt and Jack. The 1920s didn’t have federal disclosure requirements. The markets were rife with fraud, manipulation, and abuse. What happened? Investors got hurt. They lost confidence in the integrity of the capital markets. And the market imploded.

Some voices today are calling for further expanding the exemptions to our core 1933 and 1934 Act rules requiring registration of public offerings and ongoing disclosures.

There are participants in crypto securities markets that seek to avoid these registration requirements. No registration means no mandatory disclosure. Many would agree that the crypto markets could use a little disinfectant.

Wash, Fine, Repeat? SEC Enters Fray of Agencies Monitoring Companies’ AI Use

The SEC has a few effective sets of tools it can wield to prosecute companies’ AI washing practices. In the Delphia and Global Predictions cases, for example, the agency charged both firms with violating its marketing rule, which prohibits investment advisers from sharing any advertisement that includes any “untrue statement of a material fact.”

But it’s not the only rule it can apply in these enforcement actions, Kern said.

“AI washing is a form of misrepresentation or misstatement. So they’re going to use the Advisers Act if it’s an advisory firm, and they’re gonna use the Exchange Act, if it’s a broker. And they’re just going to fit it into whatever existing rule,” he explained.

SEC Climate Reporting Rules Revived After Court Lifts Hold

Fifth Circuit Judges Edith Jones, Stephen Higginson and Cory Wilson lifted the hold in an unpublished order. Their order also transfered litigation over the climate regulations to the Eighth Circuit.

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The SEC had told the Fifth Circuit that Liberty Energy’s request to pause the rules was premature ahead of the lottery to pick a court to handle the challenges, saying the company was “forum shopping.” Liberty Energy disputed the claims.

The Fifth Circuit judges handling the matter didn’t comment on the allegations in their orders approving the stay and terminating it.

Feds Seize Luxury Jet Meant for Bankman-Fried and FTX Associates

A luxury jet that was intended to ferry FTX co-founder Sam Bankman-Fried and other executives to-and-from the Bahamas before the crypto platform went bankrupt is being turned over to US authorities.

The jet, an Embraer Legacy EMB-135BJ, is being flown from the Bahamas to Florida where it will be surrendered to law enforcement, according to papers filed Friday by federal prosecutors. US Marshals have already seized a second jet that also was meant to be used by FTX. Authorities are seeking court permission to sell both aircraft.

Companies Adopting Officer Exculpation Amendments to Corporate Charters

For nearly 40 years, Delaware Corporations have been permitted to adopt corporate charter provisions exculpated their directors from liability. Effective August 1, 2022, Section 102(b)(7) of the Delaware General Corporations Law (DGCL) was amended to permit Delaware corporations to adopt charter provisions exculpating officers, in order to provide officers with protection from liability for monetary damages similar to the protection available to directors. In the time since the officer exculpation amendment provision went into effect, many Delaware corporations have adopted officer exculpation provisions; the record so far suggest that these provisions generally enjoy significant shareholder support. As discussed below, these developments should also be of interest to D&O insurance professionals.

What the statutory officer exculpation amendment does is permit Delaware corporations to take steps to adopt officer exculpation provision in their corporate charters through a shareholder vote. The officers eligible for exculpation, if implemented by the corporation, include the president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer, or chief accounting officer, the company’s most highly compensation executive officers as identified in SEC filings and certain other officers who have consented (or deemed to have consented) to be identified as an officer and to service of process.