In early January, Newark, California-based Lucid Group, Inc. won the dismissal of a lawsuit which accused the company of significantly overstating its production outlook, thus defrauding investors in Churchill Capital Corp IV, the special-purpose acquisition company (SPAC) that helped take it public.
The merger raised about $4.4 billion for Lucid.
U.S. District Judge Yvonne Gonzalez Rogers of the District Court for the Northern District of California said the SPAC shareholders who brought the proposed class action had no reason to know in early 2021 that the SPAC would merge with the luxury electric car maker, despite media speculation of such an eventuality.
Therefore, Judge Rogers argued that the alleged misleading statements made by Lucid’s Chief Executive Officer, Peter Rawlinson, on February 5, 2021 on CNBC's "Squawk on the Street" could not have been material to shareholders’ decisions to invest in the SPAC. Rawlinson told CNBC that his company expected to produce between 6,000 and 7,000 units of its Air vehicle in 2021, and that it had "already built" a factory.
"The court cannot conceive of how plaintiffs could reasonably think a merger was likely when Lucid and CCIV had not even publicly acknowledged that a merger was being considered," Judge Rogers wrote.
In the two days following the merger announcement on February 22, 2021, shares in Churchill fell 50%, which wiped out an estimated $7.4 billion in value. The drop was largely due to the fact that Lucid admitted at the time of the announcement that it expected to produce just 577 units in 2021 and that the factory had in fact not yet been built.
The company began delivering the Air in October 2021.
Judge Rogers said that while Churchill shareholders had standing to sue over statements made by Lucid, even though they did not hold stock in the company at the time — because they alleged a "discernible" loss from "specific alleged misconduct" — the pre-merger drop in Churchill's stock price, including reaction to Rawlinson's statements, reflected "the public's perception of the likelihood of the merger, not its actual likelihood. The latter is what matters."
In December 2021, the U.S. Securities and Exchange Commission (SEC) subpoenaed Lucid for documents related to the merger, and Lucid said it has been cooperating.