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Department of Justice opens investigation into EV startup Lordstown Motors
Lordstown Motors continues to stumble. The beleaguered electric vehicle startup is now being investigated by the Department of Justice, in addition to an ongoing investigation by the Securities and Exchange Commission.
The investigation, first broke by the Wall Street Journal on Friday, is still in its early stages, according to unnamed sources. It is being conducted by the U.S. attorney’s office in Manhattan.
“Lordstown Motors is committed to cooperating with any regulatory or governmental investigations and inquiries,” a company spokesperson told TechCrunch. “We look forward to closing this chapter so that our new leadership – and entire dedicated team – can focus solely on producing the first and best full-size all-electric pickup truck, the Lordstown Endurance.”
The probe is just the latest in a series of woes for the startup, which recently said it had to cut production volumes for its debut electric pickup, Endurance, by half — from around 2,200 vehicles to 1,000. Just a few weeks after it made that announcement, there followed news of a corporate shakeup: the resignation of founding CEO Steve Burns and CFO Julio Rodriguez. Burns started the company as an offshoot of his previous startup, Workhorse Group.
Lordstown had a strong start, with investments from General Motors that helped it purchase a 6.2-million-square-foot factory from the leading automaker in late 2019. Lordstown made positive headlines last August, when it announced it would go public via a merger with a special purpose acquisition company (SPAC). The deal injected the EV startup with around $675 million in gross proceeds and skyrocketed its market value to $1.6 billion. Less than a year later, Lordstown informed the SEC that it does not have sufficient capital to manufacture Endurance.
Then, in March, the short-seller firm Hindenburg Research released a report disputing the company’s claims that it had booked 100,000 pre-orders for the electric pickup. It wrote that “extensive research reveals that the company’s orders appear largely fictitious and used as a prop to raise capital and confer legitimacy.” The SEC opened its investigation in the wake of these accusations.
The WSJ story is unclear on the scope of the inquiry and the company declined to provide details. TechCrunch will update the story if it learns more.
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Visa will not acquire Plaid after running into regulatory wall
Visa and Plaid called off their agreement this afternoon, ending the consumer credit giant’s takeover of the data-focused fintech API startup.
The deal, valued at $5.3 billion at the time of its announcement, first broke cover on January 13, 2020, or nearly one year ago to the day. However, the Department of Justice filed suit to block the deal in November of 2020, arguing that the combination would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.”
At the time Visa argued that the government’s point of view was “flawed.”
However, today the two companies confirmed the deal is officially off. In a release Visa wrote that it could have eventually executed the deal, but that “protracted and complex litigation” would take lots of time to sort out.
It all got too hard, in other words.
Plaid was a bit more upbeat in its own notes, writing that in the last year it has seen “an unprecedented uptick in demand for the services powered by Plaid.” Given the fintech boom that 2020 saw, as consumers flocked to free stock trading apps and neobanks, that Plaid saw growth last year is not surprising. After all, Plaid’s product sits between consumers and fintech companies, so if those parties were executing more transactions, the API startup likely saw more demand for its own offerings.
TechCrunch reached out to Plaid for comment on its plans as an independent company, also asking how quickly it grew during 2020. Update: Plaid responded to TechCrunch noting that it saw 60% customer growth in 2020, bringing it to more than 4,000 clients. If we presume even moderate net dollar retention amongst its customer base, Plaid could have grown by triple-digits last year, in percentage terms.
While the Visa-Plaid deal was merely a single transaction, its scuttling doesn’t bode well for other fintech startups and unicorns that might have eyed an exit to a wealthy incumbent. The Department of Justice, in other words, may have undercut the chances of M&A exits for a number of fintech-focused startups or at least created more skittishness around that possible exit path.
If so, expected exit valuations for fintech upstarts could fall. And that could ding both fintech-focused venture capital activity, and the price at which startups in the niche can raise funds. If the Visa-Plaid deal was a huge boon to fintech companies that used it as a signpost to help raise money at new, higher valuations, the inverse may also prove true.
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Equity Shot: The DoJ, Google and what the suit could mean for startups
Hello and welcome back to Equity, TechCrunch’s venture-capital-focused podcast where we unpack the numbers behind the headlines.
It’s a big day in tech because the U.S. federal government is going after Google on anti-competitive grounds. Sure, the timing appears crassly political and the case is not picking up huge plaudits thus far for its air-tightness, but that doesn’t mean we can ignore it.
So Danny and I got on the horn to chat it up for about 10 minutes to fill you in. For reference, you can read the full filing here, in case you want to get your nails in. It’s not a complicated read. Get in there.
As a pair we dug into what stood out from the suit, what we think about the historical context and also noodled at the end about what the whole situation could mean for startups; it’s not all good news, but adding lots of competitive space to the market would be a net-good for upstart tech companies in the long-run.
And consumers. Competition is good.
You can read TechCrunch’s early coverage of the suit here, and our look at the market’s reaction here. Let’s go!
Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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Decrypted: Tesla’s ransomware near miss, Palantir’s S-1 risk factors
Another busy week in cybersecurity.
In case you missed it: A widely used messaging app used by over a million protesters has several major security flaws; a little-known loophole has let the DMV sell driver’s licenses and Social Security records to private investigators; and the U.S. government is suing to reclaim over $2.5 million in cryptocurrency stolen by North Korean hackers from two major exchanges.
But this week we are focusing on how a Tesla employee foiled a ransomware attack, and, ahead of Palantir’s debut on the stock market, how much of a risk factor is the company’s public image?
THE BIG PICTURE
Russian charged with attempted Tesla ransomware attack
$1 million. That’s how much a Tesla employee would have netted if they accepted a bribe from a Russian operative to install malware on Tesla’s Gigafactory network in Nevada. Instead, the employee told the FBI and the Russian was arrested.
The Justice Department charged the 27-year-old Russian, Egor Igorevich, weeks later as he tried to flee the United States. According to the indictment, his plan was to ask the employee to deliberately deploy ransomware on the Gigafactory’s network, grinding the network to a halt for a ransom of several million dollars. The would-be insider threat is likely the first of its kind, one ransomware expert told Wired, as financially driven hackers continue to up their game.
Tesla founder Elon Musk tweeted earlier this week confirming that Tesla was the target of the failed attack.
The attack, if carried out, could have been devastating. The indictment said that the malware was designed to extract data from the network before locking its files. This data-stealing ransomware is an increasing trend. These hacker groups not only encrypt a victim’s files but also exfiltrate the data to their servers. The hackers typically threaten to publish the victim’s files if the ransom isn’t paid.
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Decrypted: DEA spying on protesters, DDoS attacks, Signal downloads spike
This week saw protests spread across the world sparked by the murder of George Floyd, an unarmed Black man, killed by a white police officer in Minneapolis last month.
The U.S. hasn’t seen protests like this in a generation, with millions taking to the streets each day to lend their voice and support. But they were met with heavily armored police, drones watching from above, and “covert” surveillance by the federal government.
That’s exactly why cybersecurity and privacy is more important than ever, not least to protect law-abiding protesters demonstrating against police brutality and institutionalized, systemic racism. It’s also prompted those working in cybersecurity — many of which are former law enforcement themselves — to check their own privilege and confront the racism from within their ranks and lend their knowledge to their fellow citizens.
THE BIG PICTURE
DEA allowed ‘covert surveillance’ of protesters
The Justice Department has granted the Drug Enforcement Administration, typically tasked with enforcing federal drug-related laws, the authority to conduct “covert surveillance” on protesters across the U.S., effectively turning the civilian law enforcement division into a domestic intelligence agency.
The DEA is one of the most tech-savvy government agencies in the federal government, with access to “stingray” cell site simulators to track and locate phones, a secret program that allows the agency access to billions of domestic phone records, and facial recognition technology.
Lawmakers decried the Justice Department’s move to allow the DEA to spy on protesters, calling on the government to “immediately rescind” the order, describing it as “antithetical” to Americans’ right to peacefully assembly.
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FTC, Justice Dept. takes coordinated action against robocallers
Federal authorities have announced its latest crackdown on illegal robocallers — taking close to a hundred actions against several companies and individuals blamed for the recent barrage of spam calls.
In the so-called “Operation Call It Quits,” the Federal Trade Commission brought four cases — two filed on its behalf by the Justice Department — and three settlements in cases said to be responsible for making more than a billion illegal robocalls.
Several state and local authorities also brought actions as part of the operation, officials said.
Each year, billions of automatically dialed or spoofed phone calls trick millions into picking up the phone. An annoyance at least, at worse it tricks unsuspecting victims into turning over cash or buying fake or misleading products. So far, the FTC has fined companies more than $200 million but only collected less than 0.01% of the fines because of the agency’s limited enforcement powers.
In this new wave of action, the FTC said it will send a strong signal to the robocalling industry.
Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said Americans are “fed up” with the billions of robocalls received every year. “Today’s joint effort shows that combatting this scourge remains a top priority for law enforcement agencies around the nation,” he said.
It’s the second time the FTC has acted in as many months. In May, the agency also took action against four companies accused of making “billions” of robocalls.
The FTC said its latest action brings the number of robocall violators up to 145.
Several of the cases involved shuttering operations that offer consumers “bogus” credit card interest rate reduction services, which the FTC said specifically targeted seniors. Other cases involved the use of illegal robocalls to promote money-making schemes.
Another cases included actions against Lifewatch, a company pitching medical alert systems, which the FTC contended uses spoofed caller ID information to trick victims into picking up the phone. The company settled for $25.3 million. Meanwhile, Redwood Scientific settled for $18.2 million, suspended due to the inability for defendant Danielle Cadiz to pay, for “deceptively” marketing dentistry products, according to the FTC’s complaint.
The robocalling epidemic has caught the attention of the Federal Communications Commission, which regulates the telecoms and internet industries. Last month, its commissioners proposed a new rule that would make it easier for carriers to block robocalls.
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