SEC investigates Faraday Future as regulatory crackdown on EV SPACs continues

Several executives at EV company Faraday Future have been subpoenaed by the U.S. Securities and Exchange Commission as part of an investigation into inaccurate statements made to investors, according to a securities filing issued Thursday.

The subpoena comes nearly two months after Faraday Future’s internal investigation determined employees made inaccurate statements to investors and that its “corporate culture failed to sufficiently prioritize compliance,” according to a regulatory filing. That internal probe prompted Faraday Future to revamp its board, cut the pay of two top executives and suspend at least one other.

The SEC’s investigation escalates matters for Faraday Future. It’s also the latest in a string of investigations by the SEC into EV startups that have gone public via a merger with a blank check, or special purpose acquisition, company.

Merging with a SPAC was the hot ticket to the public markets in 2020 and 2021. A string of electric vehicle startups took this route in pursuit of the capital needed to develop and build EVs at scale. The SEC has taken notice and initiated investigations into at least a half dozen of them, including Lordstown Motors, Canoo, Electric Last Mile Solutions and Lucid Group.

Faraday Future has had a long string of controversies since its founding in 2014. It became a publicly traded company in July 2021 after merging with Property Solutions Acquisition Corp. in a deal that has since raised the ire of investors and the SEC.

A few months after the merger, a short-seller report alleged that Faraday Future had made a number of inaccurate statements. An internal review conducted by a special committee of directors that tapped the expertise of a forensic accounting firm and independent legal counsel soon followed.

The committee found that company employees understated the involvement of founder and former CEO Jia Yueting, who is now chief product officer. The review also determined that the company’s declaration that it had received more than 14,000 reservations for the FF 91 vehicle was potentially misleading because only several hundred of those reservations were paid; the remainder, which totaled 14,000, were unpaid indications of interest. The company’s internal controls over financial accounting and reporting also require an upgrade in personnel and systems, the reviewers found.

The special committee took a number of actions, including cutting CEO Carsten Breitfeld and Yueting’s pay by 25%. Brian Krolicki stepped down from his role as chairman of the board and chair of the nominating and corporate governance committee and become a member of the audit and compensation committees of the board. Jiawei (Jerry) Wang, the company’s VP of Global Capital Markets, was suspended without pay, and Jarret Johnson, general counsel and secretary, left the company.

In the new filing Thursday, Faraday said it “continues to implement the appropriate remedial actions” approved by the internal committee and is continuing with its investigation.

Faraday Future also said Thursday that it is unable to file its annual report for the year ended December 2021 and does not expect to meet the extended deadline because the internal investigation is causing delays.