The number of vehicle orders was faked, and the time left for Jia Yueting was short

Produced by Radar Finance and | Li Yihui, ed. | Deep Sea

Recently, Faraday Future (FF) announced that a special committee set up by the board of directors found that only a few hundred of the company's purported orders for a total of 14,000 vehicles were paid. In particular, the investigative documents highlight that this can be misleading.

The investigation report presented to the U.S. Securities and Exchange Commission (SEC) also pointed to certain inconsistencies in the company's investor statements and certain weaknesses in the company's controls and culture. In addition, other allegations, including those of short-selling agencies last year, are not supported by the evidence reviewed.

In response to the survey results, the organizational structure of FF has been greatly adjusted. This includes the appointment of Susan Swenson, an independent member of the current Board of Directors, to the newly created position of Executive Chairman. FF Global CEO Bi Fukang, F founder, chief product and user ecology officer Jia Yueting will report directly to Susan Swenson, and both will have their basic salaries cut by 25%.

In October last year, a short-selling report issued by short-selling agency J Capital Research (Chinese translated as Meiqijin Investment) questioned FF's R&D investment, production capacity, capital operation performance and founder Jia Yueting himself.

According to market news, some law firms have solicited class actions against Faraday Future from investors, saying that FF may have violated US securities-related laws and regulations, and calling on investors who have suffered losses due to trading the company's shares to join the lawsuit.

According to Faraday's future plans, the mass production version of FF 91 will officially roll off the production line in July this year. According to previous reports, FF is looking for a city where the Chinese headquarters will land. Analysts believe that the falsification of vehicle reservation data will affect the subsequent promotion of the company's project in China.

FF91 order data is false

On November 15, 2021, FF disclosed that the Board of Directors had set up a special committee to investigate possible inaccurate disclosures.

The investigation included allegations in the October 2021 Short Sellers Report, which prevented the Company from filing its third quarterly report for 2021 in a timely manner and filing a revised declaration of incorporation on Form S-1.

On February 1, 2022, the company issued a press release announcing that the Special Committee had reached the following conclusions during its review.

First, with regard to the business merger between FF and PSAC in July 2021, the statements made by certain company employees describing Jia Yueting's role within the company to certain investors were inaccurate. Jia Yueting's participation in corporate management after the merger has a greater impact on some investors than some investors.

In fact, Jia Yueting's identity in the FF company he founded has changed several times. In June 2017, Jia Yueting claimed to have gone to Los Angeles to attend a regular company meeting, and has not returned since. During the period, due to the lack of funds, the California headquarters applied for bankruptcy reorganization, the FF91 mass production plan was repeatedly shelved and other crises repeatedly appeared in the media headlines, and Jia Yueting's own credibility was greatly reduced.

After Jia Yueting fell into a personal credit crisis, a number of investment institutions that had contact with FF have said that unless Jia Yueting withdraws from FF, it will not consider a new round of investment. This also laid the groundwork for the later addition of foreign executives such as Bi Fukang and the resignation of Jia Yueting as CEO of FF.

According to media reports, in September 2019, Jia Yueting announced his resignation as Faraday's future CEO and instead became CPUO (Chief Product and User Officer), with Bi Fukang from BMW as CEO.

Although through the personal bankruptcy restructuring plan, Jia Yueting formally transferred all personal assets determined by the US court, including all FF equity and related income rights held by individuals, to the creditor trust and no longer held any FF equity, he still participated in the operation of the company.

It is understood that after resigning as CEO, Jia Yueting once again participated in the operation of FF as a CPUO, responsible for the overall implementation of the Internet ecosystem strategy, as well as artificial intelligence, product definition and other related work. Foreign media also disclosed that Jia Yueting's relative Wang Jiawei, who served as vice president of FF's global capital market, was also Jia Yueting's "own person" installed inside FF.

In addition, the documents disclosed when FF landed on the US stock market showed that Jia Yueting could also use FF Top Holding Ltd, which was controlled by FF management. (hereinafter referred to as "FF TOP") to achieve control over the company. Specifically, the FF Management Committee holds 80% of FF TOP through FF Global Partners LLC, which is 100% owned, and the other 20% is held by Jia Yueting's Creditor Trust. Jia Yueting and Wang Jiawei are members of the committee.

In terms of voting rights, FF TOP has voting rights equal to 37.4% shareholding, and can designate 4 board members, plus the CEO must be a director, which means that FF TOP can control 5 of the 9 directors of FF companies. This also means that by controlling the majority of directors, Jia Yueting can exercise control over FF.

Second, the survey found that FF91's booking data was false. In its pre-merger statement, FF said it had received more than 14,000 bookings for FF 91 vehicles, which could be misleading as only a few hundred of those bookings had been paid, while the rest (14,000 in total) were unpaid.

The FF 91 is the first mass-produced model released in Las Vegas, USA, on the eve of the CES show in early 2017 after Jia Yueting began to build cars in 2014. When Jia Yueting was still serving as FF's CEO, it was announced that FF91 would be delivered no later than 2018. However, after several ticket hoppings, the latest planned delivery date is July this year.

Although the delivery and mass production time has been delayed again and again, the reason why FF can gain the favor of capital in the future is that it has considerable technical advantages. According to the relevant information disclosure, FF claims to have invested more than US$2 billion in research and development expenses, and the company is applying for or has been granted about 880 utility and design patents worldwide, of which 530 patents have been granted.

In November 2017, Evergrande signed a financing agreement with FF, in which FF transferred all 45% of its equity to the other party in exchange for a three-year, $2 billion injection. It is reported that Evergrande had conducted performance tests for up to 1 month before investing in FF, and it was said that the maximum power of FF91 was 783 kW/1050 horsepower, and the acceleration of 100 kilometers was only 2.39 seconds, even exceeding the Tesla MODEL X in the same period.

Finally, the investigation also found that, consistent with FF's previous public disclosures of material deficiencies identified in its internal controls, FF's internal controls over financial accounting and reporting required upgrades to personnel and systems. Also, FF's corporate culture does not take compliance as seriously.

Meanwhile, the investigative documents highlight that other allegations against FF, including a previous short-selling report by J Capital Research, were not supported by the evidence reviewed.

It is worth mentioning that because of these surveys, when the fourth quarter financial reports of US stock companies have been released, FF has not yet released the third quarter of 2021 financial reports.

Organizational structure adjustment, Jia Yueting salary reduction of 25%

In response to the current findings, FF has taken a series of remedial measures, which were approved by the Special Committee on January 26, 2022, and approved at the Board meeting on January 31, 2022, with immediate effect.

Remedies include the appointment of Susan Swenson (currently an independent member of the Board of Directors) to the position of Executive Chairman of the Board. In view of Susan Swenson's assumption of the position of Executive Chairman, she will resign from the Audit and Compensation Committee of the Board.

Susan Swenson, as executive chair, will be entitled to a basic salary of $100,000 per month. At the same time, she also obtained a certain number of stock options. At the closing price on January 31, 2022, the value of these shares is equal to $3 million.

According to her resume, Susan Swenson has been appointed to the board of directors of FF since July 2021. Prior to that, she had decades of operational experience in technology-related industries, including wireless telecommunications, video technology, digital media, telematics, and small business software.

Under Susan Swenson's chairmanship, CEO Carsten Breitfield and founder and chief product and user ecosystem officer Jia Yueting will report directly to Susan Swenson, and both will have their annual base salaries cut by 25 percent.

The remedial measures also announced also include the appointment of Jordan Vogel as the lead independent director. Jordan Vogel, as lead independent director, will receive an additional $27,500 a year in a salary.

Under the new leadership structure, Brian Krolicki will step down as Chairman of the Board and Chairman of the Corporate Governance and Nomination Committee to become a member of the Audit and Compensation Committee of the Board, and Jordan Vogel will step down as Chairman of the Corporate Governance and Nominating Committee.

Scott Vogel will become Chairman of the Board's Audit Committee, Corporate Governance and Nominating Committee, and Jiawei Wang, Vice President of Global Capital Markets at FF, suspended.

In addition to the above adjustments, FF has taken additional steps, including upgrading its internal controls over financial accounting and reporting, evaluating and strengthening its policies and procedures regarding financial accounting and reporting, evaluating its corporate housing arrangements and its related party disclosures, hiring a Chief Compliance Officer (CCO), and the departure of Deputy President, General Counsel and Secretary Jarret Johnson from the Company.

The cause of FF's investigation into inaccurate disclosure of itself stemmed from a short report issued by the short-selling agency Meiqijin in October last year.

The short report expressed its doubts about FF from multiple angles such as its production capacity, capital operation performance, R&D investment status, and Jia Yueting's own penalties in China, calling it an "emerging electric vehicle scam" and saying that it "does not think that FF can sell even one car.".

For the accusations of short reporting, Jia Yueting once recalled in the circle of friends that "the short-selling agency's remarks are cold and hot and nonsense", and said that the agency has not been punched in the face for the first time. But then, FF set up a special committee of independent directors to investigate the allegations.

On February 4, Pomerantz Law Firm, which had filed a class action lawsuit for Luckin stock investors, announced that it would investigate claims on behalf of investors in FF. Previously, a number of law firms have filed class actions against FF.

As of the close of trading on February 4, local time, FF's stock price closed at $4.32, with a total market value of only $1.401 billion, down 68.65% from the issue price of $13.78 on July 22 last year.

FF 91 mass production has jumped tickets many times, and the domestic headquarters has not yet been finalized

Although FF has not yet disclosed its third-quarter earnings, in an investor call in December last year, FF said that in the three months ended September 30, 2021, it expected the third quarter loss to increase to about $143 million and the net loss to about $280 million.

Since its inception, FF has accumulated losses of approximately $2.8 billion and will continue to do so for the foreseeable future. FF estimates that it will also require about $1.5 billion in additional funding and expects to achieve profitability and positive cash flow in 2024. According to Chuck McBride, CFO of FF, the additional funds will be used for the development of two models, the FF 81 and FF 71.

As for the FF 91, according to Bifukang, the production version of the model will be delivered in the first batch in July 2022 as originally planned. According to FF's recently updated Weibo, on January 26 this year, the production equipment shipped by the supplier of welding production equipment at its Hanford factory arrived in the United States smoothly.

On the financial front, as of September 30, 2021, FF's total assets were approximately $1.1 billion, including $667 million in cash and cash equivalents, an increase from $316 million at the end of 2020. Bi Fukang said that the company has sufficient cash support to complete production of FF91 in July.

At the end of November last year, the relevant person in charge of FF said in response to the question of the company's financial report extension that in addition to making every effort to achieve FF91 mass production, the company was also negotiating matters related to the landing of the Chinese headquarters.

It is reported that FF China is in talks with a number of local governments, including Zhuhai, and there are 5 to 6 target provinces and cities, and is accelerating the search for FF China headquarters to settle in cities, and the first batch of FF 91 flagship stores in China will be located in Beijing, Shanghai, Guangzhou and Shenzhen.

But two months have passed, and FF's layout in China has disappeared. Zhang Xiang, an analyst in the automotive industry, once told Radar Finance that being questioned by short-selling agencies is an electric vehicle scam, which has a very bad impact on the reputation of FF, and its domestic factory is likely to be yellow.

Some analysts said that now it has been confirmed that the FF 91 booking data is false, and FF wants to lay out in the country, which is bound to be more strictly scrutinized. At present, the new domestic forces have passed the mark of selling more than 10,000 vehicles a month, and there is not much time left for Jia Yueting.

Note: This article is the original of Radar Finance (ID: leidacj). Unauthorized reproduction is prohibited.