In a recent development, the U.S. Securities and Exchange Commission (SEC) has imposed a fine of $1.5 million on electric vehicle company Canoo Inc., citing reporting failures related to substantial and unreasonable revenue projections. The SEC alleges that Canoo, along with its former CEO Ulrich Kranz and former chief financial officer Paul Balciunas, misled investors about the company’s financial prospects prior to its public merger with a special purpose acquisition company in December 2020.
Leading up to the merger, Canoo projected revenue figures of $120 million in 2021 and $250 million in 2022, primarily based on deals for engineering services with other companies. However, in March 2021, the company’s stock plummeted by 21% after it became evident that the anticipated revenue targets would not be achieved, as stated by the SEC in court documents.
Although Canoo did not admit to any wrongdoing, the company confirmed in May that it had reached a tentative settlement with the SEC to conclude the investigation, which had commenced in April 2021.
See also: Canoo Expands Partnership with U.S. Department of Defense for New High-Power Battery Pack
The SEC also reached settlements with former CEO Ulrich Kranz and former CFO Paul Balciunas. As part of the settlement, Kranz has agreed to a three-year bar from serving as an officer or director of public companies and to pay a fine of $125,000. Balciunas, on the other hand, has agreed to a two-year bar, a $50,000 fine, and the return of $7,500 in profits. The regulator alleges that both Kranz and Balciunas were aware before the merger that the projected revenue figures were unlikely to materialize.
Moreover, the SEC further accused Kranz of failing to disclose compensation amounting to over $900,000 that he had received from two Canoo investors in October 2020 to remain with the company.
Legal representation for Balciunas, Daniel Wachtell, expressed satisfaction with the resolution of the matter, while an attorney for Kranz declined to provide any comments.
In May, Canoo had tentatively agreed to pay the $1.5 million penalty as part of the settlement with the SEC. However, the company’s spokesperson did not respond immediately to a request for comment following the latest developments on Friday.
It is important to note that in May, the Texas-based automaker had cautioned investors about the possibility of not meeting its financial obligations, disclosing access to $600 million in funding while expressing “substantial doubt” about its ability to continue as a going concern. The company’s second-quarter results are scheduled to be reported on August 14.
See also: Canoo Secures Long-Term Lease for Advanced Vehicle Manufacturing Facility in Oklahoma City
Canoo’s stock had reached a peak of $20.28 per share around its public debut in December 2020. However, since February, the stock has experienced a decline, currently trading below $1 per share.
The surge of special purpose acquisition companies (SPACs) in 2020 and 2021, including companies like DraftKings Inc. and Nikola Corporation, took companies public but drew scrutiny from watchdogs and the SEC due to concerns about the adequacy of due diligence. As a result, the SEC has been actively pursuing SPAC-related enforcement investigations and seeking to implement stricter rules for blank-check companies, with the aim of improving disclosures and accountability.
