A group of shareholders is set to have their day in court as they seek to prove allegations of fraud against Rivian during its initial public offering (IPO). A California judge has deemed it plausible that the automaker’s executives were aware of the necessity for a price increase prior to listing its shares.
The legal action originates from early 2022 when Charles Larry Crews accused Rivian of concealing the underpricing of its R1T pickup and R1S SUV in the buildup to the 2021 IPO. Despite the IPO breaking records with an initial price of $78.00 and a rapid ascent, the shares plummeted by nearly 40 percent after the company abruptly announced significant price hikes a few months later.
Rivian faced severe backlash for raising the prices of its electric vehicles by up to $14,500, representing around a 20 percent increase. The most significant outrage was directed at the decision to raise prices on vehicles that customers had already pre-ordered.
Although the company eventually backtracked on that specific decision, Crews alleged that Rivian was aware that these price increases “would tarnish Rivian’s reputation as a trustworthy and transparent company.” He described the subsequent reversal as a futile attempt at damage control.
Recently, U.S. District Judge Josephine Staton ruled that shareholders should be given the opportunity to substantiate their claim that Rivian was aware of the necessity to raise prices on the R1S and R1T vehicles. Judge Staton referred to the rising material costs as a “unique major obstacle to profitability” specific to Rivian, rather than a commonplace issue.
“The inference that Rivian senior executives knew that the cost for each R1 EV exceeded its retail price by approximately $40,000 leading up to the IPO is far more plausible than the inference that those executives were in the dark about the issue,” stated Judge Staton.
The lawsuit will be handled by lawyers representing Swedish pension fund Sjunde AP-Fonden, the lead plaintiff in the proposed class action.
