Sam Farrar, Et Al. V. Workhorse Group, Inc., Et Al. 21-CV-02072
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Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 1 of 18 Page ID #:1 1 Laurence M. Rosen (SBN 219683) THE ROSEN LAW FIRM, P.A. 2 355 South Grand Avenue, Suite 2450 3 Los Angeles, CA 90071 4 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 5 Email: [email protected] 6 Counsel for Plaintiff 7 8 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA 9 10 SAM FARRAR, Individually and on No. 11 Behalf of All Others Similarly Situated, CLASS ACTION COMPLAINT 12 FOR VIOLATIONS OF THE 13 Plaintiff, FEDERAL SECURITIES LAWS 14 v. 15 CLASS ACTION WORKHORSE GROUP, INC., 16 DUANE HUGHES, and STEVE (DEMAND FOR JURY TRIAL) 17 SCHRADER, 18 Defendants. 19 20 Plaintiff Sam Farrar (“Plaintiff”), individually and on behalf of all other 21 persons similarly situated, by Plaintiff’s undersigned attorneys, alleges the 22 following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, 23 and upon information and belief as to all other matters based on the investigation 24 conducted by and through Plaintiff’s attorneys, which included, among other things, 25 a review of U.S. Securities and Exchange Commission (“SEC”) filings by 26 Workhorse Group, Inc. (“Workhorse” or the “Company”), as well as media and 27 analyst reports about the Company and Company press releases. Plaintiff believes 28 29 CLASS ACTION COMPLAINT FOR VIOLATIONS OF 30 THE FEDERAL SECURITIES LAWS 31 Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 2 of 18 Page ID #:2 1 that substantial additional evidentiary support will exist for the allegations set forth 2 herein. 3 NATURE OF THE ACTION 4 1. Plaintiff brings this securities class action on behalf of persons who 5 purchased the securities of Workhorse between July 7, 2020 and February 23, 2021, 6 inclusive (the “Class Period”). Plaintiff seeks to recover compensable damages 7 caused by Defendants’ violations of the federal securities laws under the Securities 8 Exchange Act of 1934 (the “Exchange Act”). 9 JURISDICTION AND VENUE 10 2. The claims asserted herein arise under and pursuant to Sections 10(b) 11 and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 12 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5). 13 3. This Court has jurisdiction over the subject matter of this action 14 pursuant to 28 U.S.C. § 1331, and Section 27 of the Exchange Act (15 U.S.C. 15 §78aa). 16 4. This Court has jurisdiction over each Defendant named herein because 17 each Defendant has sufficient minimum contacts with this judicial district so as to 18 render the exercise of jurisdiction by this Court permissible under traditional 19 notions of fair play and substantial justice. 20 5. Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) 21 and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)) as the alleged 22 misstatements entered and the subsequent damages took place in this judicial 23 district. 24 6. In connection with the acts, conduct and other wrongs alleged in this 25 complaint, Defendants, directly or indirectly, used the means and instrumentalities 26 of interstate commerce, including but not limited to, the United States mails, 27 interstate telephone communications and the facilities of a national securities 28 exchange. Defendants disseminated the statements alleged to be false and 29 1 30 CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 31 32 Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 3 of 18 Page ID #:3 1 misleading herein into this district, and Defendants solicited purchasers of 2 Workhorse securities in this district. 3 PARTIES 4 7. Plaintiff, as set forth in the accompanying Certification, purchased the 5 Company’s securities at artificially inflated prices during the Class Period and was 6 damaged upon the revelation of the alleged corrective disclosure. 7 8. Defendant Workhorse is a technology company engaged in the 8 development and manufacturing of electric delivery vehicles. Workhorse is 9 incorporated in Nevada and maintains its principal executive offices at 100 10 Commerce Drive, Loveland, Ohio 45140. The Company’s shares are listed on 11 NASDAQ under the ticker symbol “WKHS.” 12 9. Defendant Duane Hughes (“Hughes”) served as the Chief Executive 13 Officer and President and Director of the Company throughout the Class Period. 14 During the Class Period, Hughes sold over 568,500 shares of his Workhorse stock 15 for proceeds of over $14 million. 16 10. Defendant Steve Schrader (“Schrader”) served as the Chief Financial 17 Officer of the Company throughout the Class Period. During the Class Period, 18 Schrader sold 15,152 shares of his Workhorse stock for proceeds of over $332,131. 19 11. Defendants Hughes and Schrader are collectively referred to herein as 20 the “Individual Defendants.” 21 12. Each of the Individual Defendants: 22 (a) directly participated in the management of the Company; 23 (b) was directly involved in the day-to-day operations of the 24 Company at the highest levels; 25 (c) was privy to confidential proprietary information concerning 26 the Company and its business and operations; 27 28 29 2 30 CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 31 32 Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 4 of 18 Page ID #:4 1 (d) was directly or indirectly involved in drafting, producing, 2 reviewing and/or disseminating the false and misleading statements 3 and information alleged herein; 4 (e) was directly or indirectly involved in the oversight or 5 implementation of the Company’s internal controls; 6 (f) was aware of or recklessly disregarded the fact that the false 7 and misleading statements were being issued concerning the 8 Company; and/or 9 (g) approved or ratified these statements in violation of the federal 10 securities laws. 11 13. The Company is liable for the acts of the Individual Defendants and its 12 employees under the doctrine of respondeat superior and common law principles 13 of agency because all of the wrongful acts complained of herein were carried out 14 within the scope of their employment. 15 14. The scienter of the Individual Defendants and other employees and 16 agents of the Company is similarly imputed to the Company under respondeat 17 superior and agency principles. 18 15. The Company and the Individual Defendants are referred to herein, 19 collectively, as the “Defendants.” 20 SUBSTANTIVE ALLEGATIONS 21 Background 22 16. In 2016, the United States Postal Service (“USPS”) announced the 23 USPS Next Generation Delivery Vehicle (“NGDV”) project, a competitive 24 multiyear acquisition process for replacing approximately 165,000 package 25 delivery vehicles. 26 17. Workhorse was one of the companies vying for the NGDV contract, 27 which was thought to be worth approximately $6.3 billion. 28 29 3 30 CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 31 32 Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 5 of 18 Page ID #:5 1 18. On March 13, 2020, Workhorse filed its annual report on Form 10-K 2 for the year ended December 31, 2019 (the “2019 Annual Report”), which was 3 signed by Defendants Hughes and Schrader. Attached to the 2019 Annual Report 4 were certifications pursuant to the Sarbanes-Oxley Act of 2000 (SOX) signed by 5 Defendants Hughes and Schrader attesting to the accuracy of the financial 6 statements and the disclosure of all fraud. 7 19. The 2019 Annual Report stated the following about the USPS NGDV 8 project, which was of very high importance to the Company: 9 U.S. Post Office Replenishment Program / Next Generation Delivery 10 Vehicle Project 11 Workhorse was one of the five participants that the United States Postal 12 Service (“USPS”) selected to build prototype vehicles for the USPS 13 Next Generation Delivery Vehicle (“NGDV”) project. The USPS has publicly stated that approximately 165,000 vehicles are to be replaced. 14 In September 2017, Workhorse delivered six vehicles for prototype 15 testing under the NGDV Acquisition Program in compliance with the terms set forth in their USPS prototype contract. In 2019, the vehicles 16 completed the required testing protocol as specified by the USPS. 17 18 Materially False and Misleading Statements 19 20. On July 7, 2020, Workhorse CFO Schrader granted an interview to a 20 staff writer at Benzinga, a financial news publication. The interview appeared in 21 print on the Benzinga website. When asked how Workhorse separates itself from 22 the competition generally, Schrader responded by explaining why Workhorse 23 trucks were advantageous for “postal services:” 24 BZ: How does Workhorse separate itself from the competition? 25 26 Schrader: Our trucks don’t have a transmission, so we can save postal 27 services upward of 60% of vehicle costs. Our truck will cost fleets 40 cents a mile compared to the current $1 per mile. 28 29 4 30 CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 31 32 Case 2:21-cv-02072 Document 1 Filed 03/08/21 Page 6 of 18 Page ID #:6 1 21. On July 14, 2020, Workhorse and the other participants submitted their 2 final bids in connection with the USPS NGDV project. 3 22. On July 21, 2020, CFO Schrader again spoke to a staff writer at 4 Benzinga. According to the Benzinga article: 5 6 Schrader also provided an update on the $6 billion U.S. Postal Service contract for its next-generation mail trucks.