SEC Subpoenas Bankrupt Carmaker Fisker Amid Possible Investigation
Fisker Inc., once a promising player in the electric vehicle (EV) market, has found itself in deep legal and financial turmoil. The company, founded in 2016 by renowned auto designer Henrik Fisker, was recently subpoenaed by the Securities and Exchange Commission (SEC). This development, which indicates the possibility of an ongoing investigation by the SEC, was revealed in a U.S. Bankruptcy Court filing in Delaware. Fisker filed for Chapter 11 bankruptcy protection on June 18, 2024, citing an overwhelming debt load as the primary reason. The SEC subpoena, typically a confidential request for records or testimony, was mentioned as part of a list of ongoing legal proceedings against the company. However, the court filing did not provide specific details regarding the nature of the SEC’s inquiry or why the subpoena was issued.
The news of the SEC’s involvement adds to the growing list of legal challenges facing Fisker. The company has already been named as a defendant in several shareholder lawsuits. These include a class-action lawsuit and five shareholder derivative complaints, all stemming from a sharp decline in Fisker’s stock price last fall. Derivative suits, which are filed by shareholders on behalf of the company, typically accuse corporate officers or directors of wrongdoing. In Fisker’s case, the lawsuits allege that Henrik Fisker, the company’s chairman and CEO, his wife Geeta Gupta-Fisker, who serves as the co-founder and chief financial officer, and other board members, violated their fiduciary duties and possibly securities laws.
The legal troubles are closely tied to Fisker’s struggles in the EV market. The company went public in 2020, raising about $1 billion in capital during a time of intense investor interest in electric vehicles. By 2021, Fisker was valued at nearly $8 billion, and its stock price reached an all-time high of $31.96 in March of that year. However, the company’s fortunes quickly deteriorated. By the following year, Fisker’s stock had dropped below $10 per share, and by late 2023, it had plunged to under $2. Currently, Fisker’s stock trades for less than a penny, reflecting the company’s dire financial situation.
The decline in Fisker’s stock price can be attributed to a series of unmet production goals and financial missteps. In August 2023, Fisker announced plans to produce up to 23,000 units of its Ocean SUV, an electric vehicle intended to compete with Tesla’s Model Y. However, by November, the company disclosed that it had built only 4,725 vehicles, with just 1,097 delivered to customers. This shortfall was compounded by delays in releasing third-quarter financial results, which were initially postponed due to the departure of Fisker’s chief accounting officer. When the results were finally released, they included material adjustments and a disclosure of a “material weakness in internal controls.” The company’s share price took another hit, falling by more than half to less than $2 per share.
Henrik Fisker’s public statements during this period have also come under scrutiny. In March 2023, before the release of the Ocean SUV, Fisker boasted on CNBC that the company would turn a profit on its first vehicles shipped, claiming, “I can just sit counting the cash.” He projected that Fisker would sell 1 million cars by 2027. However, these optimistic predictions proved to be far from reality. By March 2024, Fisker was forced to admit that it would struggle to deliver even 20,000 to 22,000 vehicles to its new dealer network. Despite Henrik Fisker’s reassurances in the media that the company’s stock price would recover, Fisker was delisted from the New York Stock Exchange in April 2024.
The financial fallout has been severe, not just for the company but also for its shareholders. Many, like James Lucas, a Fisker shareholder who claims to have lost over $100,000, are left with little hope of recovering their investments. The SEC’s investigation, if it leads to findings of wrongdoing, could result in civil charges or even referrals to the Department of Justice for criminal investigation. However, as Andrew Fiorella, a securities litigator, pointed out, the chances of shareholders recovering their losses are slim. In bankruptcy proceedings, secured debt holders and other claimants typically have priority over common shareholders, leaving little, if anything, for those who invested in Fisker’s stock.
Fisker’s struggles are part of a broader trend affecting EV startups. Companies like Rivian and Lucid, which also went public in 2021, have faced their own challenges, with sharp declines in stock prices as the initial hype around electric vehicles has waned. Unlike Fisker, however, these companies have the backing of deep-pocketed institutional investors and continue to operate despite the industry’s headwinds.
In conclusion, Fisker Inc.’s rapid rise and dramatic fall serve as a cautionary tale in the volatile EV market. The company’s ongoing legal battles, coupled with the SEC’s scrutiny, underscore the significant risks associated with the electric vehicle sector, particularly for startups without the financial stability to weather market fluctuations and operational challenges. As Fisker navigates its bankruptcy proceedings, the future of the company remains uncertain, with little hope for recovery for its shareholders.
