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id: 762, Created by Stan Vick, Scout
Electric Last Mile Solutions (ELMS) Seniors Misconduct Case
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- ELMS investigation discovered ELM’s seniors secretly acquired ELM shares prior to the PIPE Offering.
- Disclosures shocked the market causing $ELMS to decline by 51%.
On February 1, 2022, ELMS disclosed that its independent investigation had discovered that prior to the PIPE Offering ELM’s senior management had secretly acquired ELM shares at “substantial discounts to market value” in certain equity transactions carried out at the end of 2020 and that the difference between the fair market value and the amount actually paid should have been, but was not, recorded as compensation.
As a result, ELM’s historical financial statements were required to be restated and could not be relied upon. ELMS further announced the ouster of both of its co-founders, Jason Luo and James Taylor, who were then serving as the Executive Chairman of the Board and the CEO of ELMS, respectively.
These disclosures shocked the market, causing the price of ELMS common stock to decline by 51%.
- Prior to its delisting, Electric Last Mile Solutions (ELMS) was a publicly traded company created through the June 25, 2021 merger of a privately held company called Electric Last Mile, Inc. and a publicly traded SPAC.
- The PIPE Offering was consummated in June 2021 in connection with the closing of the Merger to raise additional funds to operate the post-Merger, combined company ELMS and as a backstop to any potential shareholder redemption.
- Though the PIPE Offering was marketed only to so-called “accredited investors,” it was a widely marketed offering and was fully subscribed.
Considering all facts, Investors have reasons to suspect the Company and its Seniors of misleading and misconduct which led to investment losses when the truth was revealed. Specifically:
- Certain senior managers had acquired Electric Last Mile common stock at substantial discounts to market value in transactions completed before the PIPE Offering;
- the difference between the fair market value of the Electric Last Mile common stock sold in the pre-PIPE Offering transactions and the amount actually paid had not been properly recorded as compensation expense by Electric Last Mile;
- the failure to record compensation expenses stemming from the pre-PIPE Offering transactions had the effect of substantially inflating Electric Last Mile’s year-end 2020 financial performance and the pro forma year-end 2020 financial performance of the combined company, thereby understating expenses, net loss, and shareholders’ deficit;
- as a result, Electric Last Mile’s historical financial statements could no longer be relied upon and would need to be restated;
- the Electric Last Mile historical financial statements provided in proxy statements were not prepared in accordance with Generally Accepted Accounting Principles; and
- BDO had failed to follow applicable laws, rules, and regulations regarding auditor independence in auditing the Electric Last Mile historical financials provided in proxy statements.
Failure to Disclose,
Shock Event Date
25 June 2021
14 June 2023
Lead Plaintiff Deadline
14 August 2023