By Tom Hals and Deepa Seetharaman
(Reuters) - 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 year.
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 court-supervised sale.
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 nothing.
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 Diamond.
(Reporting by Tom Hals in Wilmington, Delaware and Deepa Seetharaman in Detroit; Editing by Steve Orlofsky)
- Henrik Fisker
- Fisker Automotive