(CapitalWatch, June 10, New York) Faraday Future Intelligent Electric Inc. (Nasdaq: FFIE) slipped in early trading Friday on reports that the U.S. Department of Justice is scrutinizing the company following the earlier probe by the Securities and Exchange Commission.
In a Thursday filing, Faraday said that the DOJ requested certain information, without details, and that the company was "in the process of responding to, and intends to fully cooperate with, such request." Earlier, the U.S.-China electric vehicle startup fell under scrutiny by the U.S. SEC in relation to the disclosures to investors made by Faraday's management around the time of the SPAC merger. Several executives had been subpoenaed.
In addition, Faraday has been conducting its own internal reviews and had delayed the filing of its annual report. As a result of the investigation, Faraday booted several employees and said some top managers would face pay cuts. The founder of Faraday, Yueting Jia, was earlier forced to step down from his CEO role – now, he has also lost his executive position and moved to the role of chief product officer.
Faraday, an EV company without an EV, became U.S.-listed in July 2021 by merging with a special purpose acquisition company, Property Solutions Acquisition Corp. But from the start, Faraday seemed a troubled company, with its history of debt and failed production plans. A few months after its listing, the company was hit with allegations of fraud by Hindenburg and J. Capital Research.
In its report, J. Capital alleged there was little activity at Faraday's factory in Hanford, Calif., with an actual car quite far from being completed. Hindenburg claimed in its findings that Faraday had faked $1 billion worth of pre-orders of FFIE's future car from "mystery booker" Lordstown – which, if it exists, may be an affiliate, according to the allegations.
Among other things, J. Capital also noted that founder Jia "has been banned for life from being associated with publicly listed companies in China" and his accounts have been frozen. The firm goes back to Faraday's filings, which in its "risks" mentioned that Jia was seen "illegally" funding affiliated entities and improperly diverted IPO funds, in addition to making false statements to Chinese regulators and investors.
In its filing Thursday, FFIE said that it "has incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this stage, FF is unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC's investigation or estimate the range of any potential loss."
The filing was made just a day after Faraday announced plans to open a factory in China as early as 2025 and was in the process of selecting the location. As Techcrunch noted on Wednesday, the plan sounds quite ambitious, considering FFIE's troubles that may just be beginning.
FFIE shares traded down 3% Friday morning, at $2.72 apiece. Year-to-date, Faraday has lost 55% of its market value.