Electric Car Company Canoo Fined $1.5 Million Over Revenue Projection Reporting

The U.S. Securities and Exchange Commission (SEC) has imposed a $1.5 million fine on electric vehicle manufacturer Canoo Inc for alleged reporting failures related to overinflated revenue projections. The regulator asserts that the company misled investors about its financial prospects before going public through a merger with a special purpose acquisition company (SPAC) in December 2020.

The SEC claims that Canoo, along with its former CEO Ulrich Kranz and former Chief Financial Officer Paul Balciunas, provided investors with unrealistic revenue projections prior to the merger. These projections were said to be based on deals for engineering services with other companies. Specifically, Canoo projected revenue of $120 million in 2021 and $250 million in 2022.

However, in March 2021, the company's stock plummeted by 21% after it revealed that it would not achieve the anticipated revenue figures, according to court documents filed by the SEC.

Despite the settlement, Canoo has not admitted to any wrongdoing. The company had previously announced in May that it had reached a preliminary agreement with the SEC to settle the investigation, which was initiated in April 2021. The former CEO and CFO have also settled with the SEC.

As part of the settlement, Ulrich Kranz agreed to a three-year bar from serving as an officer or director of public companies and a fine of $125,000. Paul Balciunas accepted a two-year bar, a fine of $50,000, and agreed to return $7,500 in profits.

The SEC alleges that both Kranz and Balciunas were aware before the merger that the engineering service projects were unlikely to generate the projected revenue.

In addition, the regulator accused Kranz of failing to disclose more than $900,000 in compensation he received from two Canoo investors in October 2020 to retain his position with the company.

Challenges and Uncertainty

Canoo, which is based in Texas, indicated in May that it might face difficulties meeting its financial obligations. Despite having access to $600 million in funding, the company expressed "substantial doubt" about its ability to continue as a going concern.

The electric car manufacturer's stock reached a peak of $20.28 per share around its public debut in December 2020. However, it has since experienced a decline and has been trading below $1 per share since February.

Canoo is scheduled to release its second-quarter results on August 14. The SEC's enforcement action against Canoo comes amid increased scrutiny of SPACs and their due diligence processes. The SEC has been actively investigating SPAC-related matters and seeking to enhance rules and disclosures for these types of transactions to ensure greater accountability and transparency.