May 25, 2022

Several executives of electric car maker Faraday Future have been subpoenaed by the U.S. Securities and Exchange Commission as part of an investor-defraud investigation, according to a securities filing Thursday.

The subpoena comes nearly two months after Faraday Future’s internal investigation found that employees made false statements to investors and that “the corporate culture didn’t place enough emphasis on compliance,” according to regulations. This internal investigation prompted Faraday Future to revamp its board of directors, cut the salaries of two top executives and remove at least one.

The SEC investigation escalates things for Faraday Future. It’s also the latest in a series of SEC investigations into electric vehicle startups that went public through a no-check merger or special purpose vehicle.

The SPAC merger has been a hot ticket to the public markets in 2020 and 2021. A number of electric vehicle start-ups have taken this path in search of the capital needed to develop and manufacture electric vehicles on a large scale. The Securities and Exchange Commission took note and launched an investigation into at least half a dozen of them, including Lordstown Motors, Canoo, Electric Last Mile Solutions and Lucid Group.

Since its inception in 2014, Faraday Future has experienced a long string of controversies. It became a public company in July 2021 following a merger with Property Solutions Acquisition Corp. In a deal that has since drawn the ire of investors and the SEC.

A few months after the merger, a short selling report claimed that Faraday Future had made several false claims. An internal investigation was soon followed by a special committee of directors that drew attention to the expertise of the forensic accounting firm and independent legal counsel.

The committee found that company employees underestimate the involvement of founder and former CEO Jia Yueting, who is now chief product officer. The investigation also found that the company’s claim that it had received over 14,000 bookings for the FF 91 could be misleading, as only a few hundred of those bookings were paid; The rest, a total of 14,000, were unpaid interest. The reviewers found that the company’s internal control over financial accounting and reporting also required personnel and systems upgrades.

The Select Committee took a number of measures, including a 25% cut in the salaries of CEO Carsten Breitfeld and Uting. Brian Crowlicki resigned as Chairman of the Board of Directors and Chairman of the Nomination and Corporate Governance Committee and became a member of the Board’s Audit and Remuneration Committee. Jiawei (Jerry) Wang, vice president of global capital markets, was removed from his position without pay, and Jarrett Johnson, general counsel and secretary, left the company.

In a new statement filed on Thursday, Faraday said he “continues to apply appropriate corrective measures” approved by the Internal Commission and is currently under investigation.

Faraday Future also said Thursday it is unable to submit its annual report for the year ending December 2021 and does not expect to meet the extended deadline as internal investigations are delayed.

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