“It’s the lure of easy money, it’s a very strong attraction.” — Glenn Frey’s Smuggler’s Blues

After the founder of SPAC-backed Nikola Corp., Trevor Milton, was found guilty of defrauding investors, who will federal prosecutors target next among trucking companies that took a similar path to public trading?

They have options. A statement from U.S. Attorney Damian Williams suggests that some targets of the Securities and Exchange Commission and the Department of Justice may have cause for concern.

“Let this case serve as a warning to anyone who plays fast and loose with the truth to get investors to part with their money,” Williams said. “It will not end well.”

At least two electrified trucking companies are under government scrutiny. Both sought to go public through special purpose vehicle acquisition campaigns in 2020.

Mahoning Valley Shuffle

Before Taiwan’s Foxconn bought most of the assets of financially ailing Lordstown Motors Corp., the startup founded by former Workhorse Group CEO Steve Burns had moments of high stock market growth.

In 2019, Burns convinced General Motors to sell him a shuttered 6.2 million-square-foot auto assembly facility in northeast Ohio’s Mahoning Valley. GM even provided Burns with a mortgage. And he loaned him $20 million to retool the plant for his battery-powered commercial pickup called the Endurance.

Struggling to find startup cash, Burns leaned into the SPAC frenzy, agreeing to merge with DiamondPeak Acquisition Company. Just 11 weeks later, Lordstown was publicly traded on the Nasdaq. The $1.6 billion deal brought the startup $675 million in gross revenue.

Retail investors piled in after Burns’ claims that the company had attracted 100,000 orders. The stock price reached $29 per share.

Hindenburg, again

Enter Hindenburg Research, a short seller who claimed Milton built the Nikola “ocean of lies”. In March 2021, Hindenburg suggested that Lordstown was emerging “mirage” false orders and deceptions. Until July 2021, the Ministry of Justice issued subpoenas. The SEC previously launched its own investigation.

Burns and CFO Julio Rodriguez resigned a month earlier following an internal investigation. Burns’ successor, Daniel Niniwagi, arranged the sale of the Foxconn plant for $230 million. He agreed to let Foxconn outsource production of the Endurance. Production of the truck began in September, nearly two years later than Burns predicted.

GM, which backed out of an earlier $2 billion investment in Milton’s Badger phantom electric pickup after the Hindenburg revelations, put up $25 million in cash and converted the Lordstown plant’s mortgage into an in-kind contribution to the Lordstown SPAC deal.

Other than the rumors, Burns said nothing but the rumors spotted outside the Lordstown display at the Work Truck Show in Indianapolis in March. Neither the SEC nor the Justice Department filed charges. Investigations are ongoing in both cases.

Insider trading in ELMS

Another internal board investigation — this one at SPAC-backed startup Electric Last Mile Solutions — found that co-founders Chairman Jason Luo and CEO Jim Taylor bought shares at a deep discount ahead of a merger with Forum Merger III Corp.

ELMS went public in June 2021 following a merger in December 2020. The amount of the transaction was 1.4 billion dollars. ELMS received $379 million in gross proceeds following the closing of the business combination.

The board removed both auto industry veterans. Taylor had a long career at GM before running Workhorse under Burns. Luo was the former president of Ford China.

The company accused Taylor of failing to return company stock acquired through insider trading that was part of his separation agreement.

The SEC launches a probe

In March, the SEC opened an investigation into ELMS’s split with Luo and Taylor and its ability to keep promises to investors. At the time, ELMS said it would fully cooperate with the SEC’s investigation. In June, the company named after filed for Chapter 7 bankruptcy.

In September, Mullen Automotive agreed to pay $55 million for ELMS’ assets, including inventory, intellectual property and the former GM Hummer plant in Mishawaka, Indiana. TechCrunch. ELMS assembled van bodies imported from China with electric chassis before the money ran out.

Nikola founder Trevor Milton is guilty of three counts of fraud

Reports: Justice Department investigating Lordstown Motors

Electric Last Mile Solutions files for bankruptcy

Click to see other FreightWaves articles by Alan Adler.