Electric Last Mile Solutions (OTCMKTS:ELMSQ) stock is in full focus among EV stocks following a class-action complaint filed by a shareholder. The class action applies to shareholders who purchased ELMSQ stock in the private investment in public equity (PIPE) offering that occurred in December 2020. The shareholder who filed the complaint alleges that the electric vehicle (EV) company misrepresented its financial statements. The company also allegedly did not comply with generally accepted accounting principles (GAAP), among other allegations.
Last December, Mullen Automotive (NASDAQ:MULN) announced that it had completed the acquisition for ELMS’ intellectual property (IP) and inventory for $105 million. Mullen was not listed as a defendant in the class action. It was not named in the complaint, either.
EV Stocks: Shareholder Files Class Action Against ELMS
The shareholder claims that ELMS did not properly account for “massive executive compensation expenses” before the announcement of the special purpose acquisition company (SPAC) merger. As a result, ELMS’ year-end and pro-forma financial performance for 2020 was overstated. Meanwhile, its expenses, net losses and shareholders’ deficit were understated by over $700 million.
In November 2021, ELMS’ board formed a special committee to investigate stock sales by ELMS to certain insiders before the merger was complete. The company did not make investors aware of the committee’s formation at the time. The committee concluded that ELMS “failed to provide proper and adequate disclosures regarding the transactions.”
In February 2022, ELMS reported the details of the investigation. The firm disclosed that some members of senior management had acquired shares at “substantial discounts to market value.” Further, the difference between the fair market value of the shares and the actual amount paid was not recorded as compensation. As a result, ELMS’ past financial statements were deemed inaccurate. Shares of the company declined by 51% shortly thereafter, while co-founders Jason Luo and James Taylor resigned.
On Feb. 14, 2022, ELMS’ independent audit firm, BDO, resigned due to issues with the company’s legal compliance and reporting standards. In a letter, BDO stated that an “illegal act […] has or may have occurred” in regard to the insider purchases.
Ultimately, the class action alleges that investors who purchased this EV stock in the PIPE offering suffered significant losses due to an artificially inflated price.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
