Dec 30 The founders and top managers of
now-bankrupt Fisker Automotive never told potential investors
that the green car startup lost access to federal funds that
were crucial to the company's financial strength, according to
an investor lawsuit.
Co-founder Henrik Fisker, board members and executives kept
quiet that the U.S. Department of Energy cut access to a $529
million green-technology loan in June 2011, according to the
lawsuit, filed on Friday by Atlas Capital Management LP.
As a result, the firm wants a federal court in Delaware to
order the defendants to repay the nearly $2 million Atlas
invested in Fisker, which filed for Chapter 11 bankruptcy
protection in late November.
Other defendants include Kleiner Perkins Caufield & Byers, a
venture capital firm and early Fisker backer, Ray Lane, the
former Fisker chairman and Kleiner partner emeritus, and Richard
Li, an investor poised to buy Fisker out of bankruptcy.
Fisker raised more than $1.4 billion in public and private
funds after its founding in 2007, but lavish spending, quality
and engineering blunders and other mistakes drained Fisker's
coffers and delayed the launch of its Karma plug-in hybrid,
several people close to the company told Reuters earlier this
Much of Fisker's funds came after it won an Energy
Department loan in September 2009. This government loan was
continually used to entice investors to back the company and to
generate favorable press, according to the Atlas lawsuit.
Fisker tapped $192 million from its Energy Department loan
but lost access to the remainder in June 2011 after it
privately disclosed to U.S. officials that it failed to meet a
Karma production milestone required by the government. This was
never disclosed to investors, the Atlas lawsuit said.
Atlas also said that Fisker used an "obscure" provision of
its previous offering to carry out a "pay to play" capital call.
If investors did not participate in follow-on rounds, their
previous investment would be severely diluted.
Just one day after closing on a "pay to play" round of
financing in late 2012, Atlas said, Fisker disclosed it was
recalling hundreds of its Karmas because of a potential for
battery fires, a problem the carmaker had known about for weeks.
"Had plaintiff known the truth regarding the default of the
ATVM (government) loan covenants, the December 2011 recall due
to battery fires and Fisker's default of the DOE confidential
'key personnel' loan covenant, which were not disclosed,
plaintiff would not have purchased or otherwise acquired its
Fisker securities, or if it had purchased such securities, it
would not have done so at the artificially inflated prices which
it paid," Atlas said in the complaint.
A Fisker spokesman, Kleiner and an attorney who represents
Li's affiliate in the bankruptcy did not immediately return
requests for comment.
Fisker's finances began to unravel after the loss of the
Energy Department funding in mid-2011, but the company kept this
and other troubling information from potential investors for
several months, Reuters reported in June.
Fisker's financial woes worsened this year after a botched
attempt to find a buyer and the exit of executives, including
Henrik Fisker. In April, Fisker fired the bulk of its workforce
to save cash.
Just prior to Fisker's November bankruptcy filing, a company
affiliated with Li bought the Energy Department's loan for $30
million. Li is using the money owed on that loan, about $168
million, to acquire Fisker's assets in a bankruptcy
The U.S. bankruptcy court in Wilmington, Delaware, will hold
a hearing Friday to approve the sale and the company's plan to
repay its creditors, which are likely to collect next to
Monday was the deadline to object to the repayment plan and
sale, and Atlas asked the court to block both unless Fisker
established a way to preserve the company's books and records.
More than a dozen other objections were filed, mostly by
suppliers unhappy with the handling of their contracts.
A Karma owner, Robert Diamond of Syosset, New York, objected
because the sale would leave Karma owners without the ability to
obtain warranty service on their cars.
"It is patently unfair to sell the assets and business of
the debtors without requiring the purchaser to assume warranty
obligations arising in the ordinary course of business," wrote