Fisker Inc. Bankruptcy Proceedings Under Scrutiny by SEC and DOJ

Investigations into Fisker Inc.'s Bankruptcy Proceedings

Fisker Inc., a manufacturer of electric vehicles (EVs), is currently under investigation by the U.S. Securities and Exchange Commission (SEC) and is facing formal objections from the U.S. Department of Justice (DOJ) regarding its Chapter 11 bankruptcy proceedings. The company had filed for bankruptcy earlier this year after production was halted in March.

Recent documents filed in the U.S. Bankruptcy Court for the District of Delaware suggest that these legal challenges could potentially impact Fisker’s restructuring and liquidation plans.

SEC Probe into Fisker Inc.

The SEC began investigating Fisker’s activities prior to its bankruptcy filing in June. The investigation is centered around potential violations of federal securities laws, as indicated in court records.

The SEC's filing states that Fisker’s bankruptcy plan must allow for the SEC’s “police and regulatory powers” to hold the company accountable for any previous misconduct. The regulator has also emphasized the necessity for Fisker to preserve all relevant documents and records after bankruptcy to ensure compliance with ongoing investigations and any potential future actions.

According to the filings, the SEC has issued several subpoenas seeking information about Fisker’s operations prior to its financial collapse.

DOJ Objections to Fisker Inc.'s Bankruptcy Plan

At the same time, the DOJ, representing the National Highway Traffic Safety Administration, has raised objections regarding Fisker’s financial provisions for vehicle recall expenses.

The DOJ argues in its filings that Fisker’s proposed $750,000 cap on recall expenses in its bankruptcy plan is not sufficient to cover both parts and labor costs required for vehicle repairs. According to the DOJ, this cap violates the National Traffic and Motor Vehicle Safety Act, which mandates that manufacturers remedy vehicle defects “without charge when the vehicle ... is presented for remedy.”

The DOJ further argues that Fisker’s plan improperly shifts the financial burden to vehicle owners, requiring them to pay upfront for labor costs with only the possibility of future reimbursement, which is another violation of the Safety Act.

Fisker has issued five separate recalls for its vehicles, addressing issues ranging from defective door handles to faulty electric water pumps, according to the filings. While some recalls were resolved through over-the-air software updates, others required physical repairs that involved significant costs.

The DOJ contends that Fisker’s current plan does not meet its legal obligations to consumers as it limits funds available for recalls and does not fully cover the costs associated with necessary repairs.

Fisker's Assets and Liquidating Trust

The bankruptcy case involves Fisker’s assets and a plan to establish a Liquidating Trust to distribute the remaining assets to creditors. Both the SEC and DOJ are advocating for changes to ensure Fisker’s accountability for legal obligations tied to its pre-bankruptcy conduct and ongoing responsibilities.

The court is scheduled to address these objections during a hearing on Oct. 9. If the court agrees with the SEC and DOJ, Fisker may be required to modify its bankruptcy plan to comply with regulatory demands. This could include adjustments to its recall funding provisions and assurances that it will retain and produce relevant documents for the SEC’s ongoing investigation.

Fisker did not respond to a request for comment regarding the SEC and DOJ filings.

Bottom Line

The legal challenges faced by Fisker Inc. in its bankruptcy proceedings highlight the complexities and potential pitfalls of corporate bankruptcy, particularly for companies in the rapidly evolving electric vehicle sector. The outcomes of the SEC and DOJ investigations could have significant implications for Fisker's restructuring and liquidation plans. What are your thoughts on this matter? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.