CINCINNATI — Loveland-based Workhorse Group Inc. has confirmed it faces a federal investigation into the trading of its securities and its “recognition of revenue” from publicly announced contracts.
The disclosure comes four months after a group of investors alleged in a federal lawsuit the electric vehicle maker “perpetrated a scheme to fraudulently inflate the price of Workhorse securities” while executives and board members engaged in “massive stock sales.”
Workhorse Group disclosed the federal probe in a filing Monday with the U.S. Securities and Exchange Commission, confirming for the first time that issues raised by its investors are now being scrutinized by the SEC and Justice Department.
“The company is cooperating with the SEC and DOJ investigations,” said the filing. “At this point, the company cannot predict the eventual scope, duration, or outcome of the above matters.”
In a July 16 filing in U.S. District Court in Los Angeles, investors alleged Workhorse Group participated in a scheme to drive up its stock price by not revealing weaknesses in its bid for a $6.3 billion contract with the U.S. Postal Service and misrepresenting the manufacturing capabilities of the company.
“Defendants misled the market to believe that Workhorse had moved beyond the research and development phase of the company and into mass production, that the Company had a steady backlog and demand for their product, and that there was a strong possibility Workhorse would be granted all or part of the USPS contract,” said the amended complaint.
The company asked for the case to be dismissed on Oct. 18, arguing Workhorse executives “never stated that it was a frontrunner” for the Postal Contract
“In sum, the facts alleged more strongly support an inference that Workhorse fought hard to be awarded the USPS contract (and continues to protest the USPS’ decision), and that management worked to ramp up production of their trucks in the face of a once-in-a-century global pandemic,” the company argued.
One day after making those arguments in the civil case, Workhorse Group got a letter from the SEC, according to Monday’s disclosure:
“On October 19 and November 1, 2021, the Company received letters from the SEC requesting that it voluntarily provide information relating to (a) the events and trading in its securities leading up to the announcement of the award of a contract by the U.S. Postal Service for the manufacture of a postal service vehicle fleet and (b) recognition of revenue, if any, related to purchases of vehicles by certain of the Company’s customers. On November 5, 2021, the Department of Justice orally informed the Company that it has a related open investigation covering the Company.”