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Another SPAC scandal: Top ELMS leaders resign over discounted stock buys

Last-mile van maker names veteran auto executive Shauna McIntyre interim CEO

The top executives at Electric Last Mile Solutions resigned following a board probe into deeply discounted stock purchases before the startup went public via SPAC. (Photo: ELMS Inc.)

Editor’s note: Updates 7th graf with Wednesday’s closing stock price

CEO James Taylor and Chairman Jason Luo are out at Electric Last Mile Solutions Inc., a startup last-mile van maker, following a board probe into their deeply discounted stock purchases before the company went public via SPAC in December 2020. 

Both Luo and Taylor are veteran auto executives. Taylor had a long career at General Motors (NYSE: GM) before running Workhorse Group (NASDAQ: WKHS). Luo is the former president of Ford China.

ELMS is assembling Class 1 delivery vans at a former GM plant in Indiana with cabs produced and imported from Chongqing Sokon Industry Group Stock Co. Ltd. in China. Though ELMS has a first-mover advantage in small vans, it faces competition, notably from BrightDrop, GM’s recently launched subsidiary, which has 25,000 orders for electric vans it is building in Canada.

According to a press release after the markets closed Tuesday, ELMS (NASDAQ: ELMS) said a special board committee formed Nov. 25 found that Taylor and Luo bought equity in ELMS “at substantial discounts to market value without obtaining an independent valuation.” 

Luo also sold shares before the Dec. 10, 2020, business combination with special purpose acquisition company Forum Merger III Corp., which was valued at $1.4 billion.

The company said in a Securities and Exchange Commission filing Tuesday that Luo and Taylor provided responses to the special committee “that are believed to be inconsistent with documents reviewed by the special committee and its counsel.”

ELMS shares lost more than half their value on Wednesday, closing at $2.88 or 51.2% lower at $2.71.

Paybacks and silence

Taylor settled with ELMS, including agreeing to give back 1.8 million shares of ELMS stock and,  by April 11, surrender company stock worth $3.3 million. In exchange, he will be a consultant to ELMS for two years earning $300,000 a year. He also keeps his 2021 cash bonus, restricted stock units and health benefits.

Luo will surrender 6 million shares of ELMS common stock and repay an additional $10 million in cash within 120 days. 

Taylor and Luo agreed to social media restrictions and to avoid speaking negatively about ELMS.

In the SEC filing, the company said its financial statements from the time it went public in Q4 2020 through Q3 2021 were unreliable and likely would need to be restated. It also expects to find material weaknesses in its internal controls during the period.

McIntyre named interim CEO and president

ELMS on Tuesday named board member and auto industry and autonomous technology veteran Shauna McIntyre as interim CEO on a three-month contract. 

Shauna McIntyre, interim CEO and president of ELMS Inc. ((Photo: Alan Adler/FreightWaves)

McIntyre, who was president of Ouster Automotive, a unit of the lidar startup, will earn $550,000 a year prorated for the number of months she serves, according to the SEC filing.

Prior to Ouster (NYSE: OUST), McIntyre was CEO of Sense Photonics Inc., a 3D vision company building high-performance, mass manufacturable lidar for transportation. She also worked at Google and Ford (NYSE: F) where she automated manufacturing plants overseas and led final assembly production before joining McKinsey & Company as a management consultant.

“The board is confident Shauna will ensure a smooth transition, effectively manage the business and help chart a path forward,” said Brian Krzanich, who is serving as nonexecutive chairman of ELMS following Luo’s departure. Krzanich is CEO of CDK Global.

ELMS said it expects to preliminarily report $132 million to $142 million in cash and cash equivalents, including $25 million to $30 million in restricted cash, as of Dec. 31, 2021. ELMS received $379 million in gross proceeds, including $155 million from private investors such as BNP Paribas Asset Management and Jennison Associates, when the SPAC deal closed last June. 

Another SPAC scandal

The irregularities at ELMS are the latest among transportation SPAC startups. The SEC is investigating other growth stage companies that went public during the SPAC craze, including Canoo (NASDAQ: GOEV) and Lordstown Motors (NASDAQ: RIDE). 

Electric truck maker Nikola Corp. (NASDAQ: NKLA) , one of the earliest companies to bypass a traditional initial public offering in favor of the less-restrictive SPAC process, recently agreed to pay a $125 million fine without admitting wrongdoing over an SEC fraud complaint. Founder and former Executive Chairman Trevor Milton faces criminal trial in April on three fraud counts. 

There was no mention in the ELMS filing of an SEC inquiry. 

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Click for more FreightWaves articles by Alan Adler.

Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.