SEC Charges Electric Vehicle Co. for Misleading Revenue Projections Ahead of SPAC Merger

The Securities and Exchange Commission (SEC) has taken action against Spruce Power Holding Corporation, based in Denver, which is the successor to XL Fleet Corp. The charges pertain to allegations of misleading investors with revenue projections that exceeded $1 billion within three years of the company’s initial public offering. XL Fleet, a provider of hybrid electric vehicle systems for commercial fleet vehicles, went public through a merger with a special purpose acquisition company (SPAC) in 2020.

According to the SEC’s order, XL Fleet publicly claimed to possess a sales pipeline of more than $220 million over 12 months. This pipeline was purported to support near-term revenue projections of up to $75 million and long-term projections exceeding $1.4 billion. The order asserts that these projections, which were prominently featured in public filings preceding the SPAC merger, were misleading. The sales pipeline primarily consisted of speculative opportunities, including potential customers with whom XL Fleet had minimal or no contact, customers to whom they could not legally sell their products, and outdated sales prospects that had not been adequately updated within the company’s systems. Additionally, XL Fleet allegedly claimed to have applied a historical conversion rate to its sales pipeline to support its revenue projections, when in reality, this conversion rate did not substantiate the company’s forecasts.

Mark Cave, Associate Director of the Division of Enforcement, highlighted the significance of revenue projections in investment decisions, particularly in the context of early-stage companies within the SPAC market. Cave stated, “By linking its bold revenue projections to misleading claims about the company’s historical performance, XL Fleet misled investors by inhibiting their ability to differentiate between credible facts and mere aspiration.”

The SEC’s order determined that Spruce Power, as the successor to XL Fleet, violated specific antifraud, proxy, and reporting provisions of federal securities laws. While Spruce Power neither admitted nor denied the findings in the order, the company consented to a cease-and-desist order and agreed to pay a civil penalty of $11 million. The penalty amount took into account Spruce Power’s cooperation and efforts to address the situation.

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