A shareholder in electric-vehicle startup Fisker Inc. has filed a class-action lawsuit against the company, according to Robbins LLP, a firm specializing in shareholder rights that informed investors of the action.
The crux of the case comes from executives allegedly not properly disclosing what they called a “material weakness” in internal control over financial reporting. The suit centers around the recent reporting of Fisker’s third-quarter financial results; here’s a timeline of what happened around that event:
- Oct. 27: Chief Accounting Officer John Finnucan departs Fisker after three years in the role.
- Oct. 31: Burkhard Huhnke, Fisker’s chief technology officer, resigns for personal reasons. David King is promoted to the role on Nov. 3.
- Nov. 6: Florus Beuting starts work as the company’s chief accounting officer.
- Nov. 8: Chairman and CEO Henrik Fisker and his team say they are delaying reporting third-quarter results, which were scheduled for that day, until Nov. 13. The reason was the abrupt departure of Finnucan and Beuting’s subsequent arrival.
- Nov. 13: Fisker posts disappointing Q3 results. Executives slash their production forecast for the third time this year and say deliveries had missed expectations. Revenues of $71.8 million are far below expectations of nearly $101 million.
- Nov. 20: Fisker announces that Beuting left the company on Nov. 14 as part of a Securities and Exchange Commission filing saying its quarterly report will be delayed.
- Nov. 22: Fisker files its Form 10-Q with regulators, where the “material weaknesses” were disclosed. According to the filing, Fisker did not “design and maintain an effective control environment commensurate with its financial reporting requirements,” specifying that a change in key accounting personnel had caused a knowledge gap to appropriately handle its accounting matters. In addition, executives said:
- The whole accounting department lacked adequate support.
- The company said it also had failed to implement effective controls over its accounting for inventory and other income statements, which meant executives were unable to properly respond to “changes to the risks of material misstatement to financial reporting due to changes in the business.”
- Certain “non-routine, complex or unusual” events or transactions hadn’t been properly accounted for. This then led the company to have to adjust some items on its balance sheet for Q3. In the end, $20 million of expenses that had been incorrectly attributed to selling, general and administrative work were actually associated with production set-up activities. That mistake as well as other inventory adjustments resulted in a $4 million increase in net loss.
- Dec. 1: Fisker provides a business update that includes reports on its deliveries and partnerships. The company also announced it would cut its production guidance for the fourth time in 2023 to just over 10,000 units in order to “prioritize liquidity” and free up some working capital.
So, back to the shareholder lawsuit: While Fisker may have everything under control now, the plaintiff alleges Fisker failed to properly disclose four important points:
- The material weaknesses in its internal control over financial reporting
- Fisker had incorrectly accounted for certain costs
- As a result of the first two problems, the likely delay in filing its quarterly report
- Fisker’s infrastructure was limiting its ability to deliver its production.
Shareholders who feel similarly harmed are able to join the lawsuit, and potential lead plaintiffs must file their papers by Jan. 26.