Hyzon Motors, a publicly traded startup building a fuel cell plant in Bolingbrook for hydrogen-powered electric trucks, has agreed to pay $25 million to settle federal fraud charges that it misled investors.
The civil charges and settlement, announced Tuesday by the Securities and Exchange Commission, allege Rochester, New York-based Hyzon misrepresented its potential customers and sales before and after going public through a special purpose acquisition company in July 2021.
The public offering generated about $600 million in investor money.
Hyzon allegedly posted a misleading video three days before the public offering purporting to show delivery of a hydrogen-powered milk truck in Europe that was actually a standard electric vehicle, according to the complaint. Hyzon subsequently claimed to have sold 87 fuel cell electric vehicles in Europe and China during 2021, when the total for the year was in fact zero, the SEC alleged.
“Transparency in the form of full, fair, and accurate disclosure is fundamental to the federal securities laws,” Jason Burt, regional director of the SEC’s Denver office, said in a news release. “The defendants allegedly violated this principle by misleading investors about virtually every aspect of Hyzon’s business.”
The SEC complaint also names former Hyzon CEO and co-founder Craig Knight and Max C.B. Holthausen, former managing director of Hyzon’s European subsidiary, as defendants.
Without “admitting or denying” the allegations in the complaint, Hyzon has agreed to pay the $25 million penalty in three installments, according to a company statement released Tuesday. Knight agreed to pay $100,000 and Holthausen $200,000 in civil penalties, pending court approval, according to the SEC. They also agreed not to serve as officers or directors of publicly traded companies for five and 10 years, respectively.
Knight left Hyzon in August 2022 and after a review of additional information, was terminated for cause in January, the company said.
“Hyzon is pleased to put this chapter behind us, and continue our disciplined execution of operational milestones including commercial vehicle deployments and fuel cell technology developments,” Hyzon Motors CEO Parker Meeks said in the release.
Efforts to reach Knight and Holthausen were unsuccessful.
Hydrogen is an alternative fuel used to power zero-emission electric vehicles, from cars to commercial trucks. Hyzon’s parent company, Singapore-based Horizon Fuel Cell Technologies, has been developing the technology since 2003, but the power source has been slow to gain traction in the U.S. and other markets.
Launched in 2020, Hyzon plans to create both its own branded trucks and sell its fuel cells to other manufacturers.
In March 2021, Hyzon announced it was building the nation’s largest hydrogen fuel cell factory in Bolingbrook, with plans to hire up to 50 employees and begin commercial production by the end of that year.
At the time, then-CEO Knight told the Tribune the company had contracts in place with corporate and government customers in Asia, Australia and Europe. He said Hyzon would build 85 hydrogen-fueled trucks in 2021 and be at a run rate of at least 3,000 vehicles by 2023.
Those projections turned out to be mostly hot air, at least based on the current timeline.
While there are 200 employees in Bolingbrook, the 28,000-square-foot plant isn’t expected to be completed and fully operational until the end of this year, the company said Wednesday. The leased facility in an industrial park near Interstate 55 has the capacity to expand to 100,000 square feet.
And while Hyzon has done a number of trials with customers, it has yet to begin commercial production of its fuel cell electric trucks. In June, Hyzon announced its first U.S. agreement to deliver five trucks with fuel cells made in Bolingbrook to Performance Food Group beginning in late 2023.
Hyzon is working with Fontaine Modification in North Carolina to convert commercial trucks to hydrogen-powered EVs using its fuel cells.
The company expects to deliver 10 to 20 vehicles globally this year, a far cry from the 3,000 vehicles Knight previously projected for 2023. Hyzon has not issued projections for 2024.
Hyzon was valued at $2.1 billion when the proposed SPAC merger and public offering was announced in February 2021. The July 16, 2021, deal provided Hyzon with access to approximately $600 million — $200 million from the public offering and $400 million through private investment.
The wheels began to come off, however, after activist investment firm Blue Orca Capital took a large short position in Hyzon and published a disparaging report about the newly public company in September 2021. The report questioned Hyzon’s sales projections and called its largest customer a “fake-looking Chinese shell entity” formed three days before the public offering.
A federal securities class action lawsuit was filed against Hyzon two days after the Blue Orca report was published, alleging the company caused investors to suffer “significant losses and damages ” by misrepresenting its business, operational and financial results.
The lawsuit is ongoing in the Western District of New York.
The SEC began its own investigation in January 2022, related to the allegations in the Blue Orca Capital report.
In addition to the civil penalties, Knight and Mark Gordon, Hyzon’s former chief financial officer, reimbursed the company $252,000 and $122,500, respectively, for bonuses they received after the misstated financial results.
Hyzon’s stock closed at $1.20 per share Wednesday, giving it a market cap of about $294 million.