Shareholder Lawsuit

[SANZC02]

A risk is something that might happen. It is not something that you know will happen. If before the IPO they had plans to raise the price shortly after the IPO, it was not accurate to just describe that as a risk of something that might happen.

All anyone had to do was look at the vehicle specs, listed price and comparable vehicles to see the prices would need to rise. I set aside 110k for the Rivian purchase when I made the reservation as the prices had not been established at that time. My 2014 Jeep GC is worth 7.5k more today than it was when I made my Rivian reservation, we are living in an odd time.

I’ve made good financial decisions and bad financial decisions over my life but they are my decisions. I take credit for the good ones and I own the bad ones. Today the Rivian decision looks like a bad one but the book on it is not closed until I sell.

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[moosehead]

Some schmuck with 35 shares is a bit less alarming than an institutional holder. For now.

@paariv, what's your take here?

 

[Tim-in-CA]

I'm in the same position and I still want my R1T also. But,.......

To anyone:
Are the chances good that Rivian will survive, if they lose this lawsuit and the one with Laura Schwab?

What happens if Ford, Cox, and Amazon unload their shares?

I'd say that in the worst case scenario if Rivian were in dire straights, someone would swoop in and buy them at a song. Amazon would be a contender seeing as they (like Apple) have infinite amount of capital.

 

[RWerksman]

Some schmuck with 35 shares is a bit less alarming than an institutional holder. For now.

@paariv, what's your take here?

FWIW, it's nearly certain that the individual listed on the initial complaint will be replaced with an institutional investor with much more exposure. He is likely only listed here to kickoff the process.

Despite the fact that I'm very eager for my truck, and the fact that I very much want Rivian to succeed, I do believe there was deception in how the vehicles were priced and thus the backlog of orders based on that false pricing. This deception is largely around how Rivian proceeded to raise the cost substantially on everyone, including preorder holders. If they would have taken even a slightly different approach, the situation would have been different.

I might be biased because I worked in law for so long, but these sort of actions are PRECISELY why firms like the one mentioned in this thread exist. You can argue they take a (very) oversized fee, but in many instances they do their job by holding companies accountable for moves like this that harm people.


TLDR; I've seen ambulance chasers in my time working in the legal industry. This ain't it because they are probably right.

 

[Sgt Beavis]

The day Rivian cut prices, I knew this was going to happen.

 

[moosehead]

Thanks @RWerksman. I want you to be wrong, but I'm afraid you might be correct. Do you think the reset back to preorder pricing was CYA on larger exposure vs. preorder blowback?

 

[RWerksman]

Thanks @RWerksman. I want you to be wrong, but I'm afraid you might be correct. Do you think the reset back to preorder pricing was CYA on larger exposure vs. preorder blowback?

In all likelihood, no, I don't think it was CYA. I think it was in large part because of a customer mass exodus.

Additionally, I believe that despite Rivian rolling back their price increases for reservation holders, the harm is already done. (e.g. you cannot un-ring a bell) There are few things that work against them here:

1. The price increases were quite large and likely (again, in my opinion) are in excess of what inflationary or component costs have risen. This leads credence to the argument that there are other factors in play here beyond what they have identified.
2. Other court filings clearly indicate that:
   1. Rivian had knowledge that their vehicles were, "priced too low".
   2. Rivian specifically chose to delay any vehicle price adjustments until, "after the IPO".
3. Pricing was effectively set in November 2020 and was then reiterated both in the leadup to the IPO in Q3 2021 and during the media launch in Number 2021. This is NOT a 2018 price vs 2022 price change. There is only a 90 day gap between public statements to the press in November and the increase on March 1, 2022.
4. Rivian and their partners used preorder volume repeatedly as a KPI for anyone looking to invest in the IPO.

On the flip side, there is likely something in the S1 that discusses risks. I've not looked at this in quite some time, and I don't recall if it mentions specific scenarios that would mitigate this. (it wouldn't surprise me if it does)


The thing I keep going back to, and what is rankly more painful, is that this is completely self inflicted harm, on multiple levels.

• First they raised the pricing only to roll it back on the vast majority of their order backlog, thus eliminating any short term gains.
• Second they raised pricing in what I would consider a grossly incompetent way that completely underestimated the consequences of doing so. They damaged their brand, alienated key communities that should have been a stronghold of support, and fired up at least someone to the point where they worked with a firm to bring a suit about it.
• Third, the amount of the increase was, as previously mentioned, out of band. This garnered both an openly hostile response and is a contributor to the arguments made in the IPO related filing.

If they would have implemented a smaller increase, or if they would have omitted even a selection of preorder holders from the increase it would be a much different story. Alas, here we are.

 

[cc84]

I'd say that in the worst case scenario if Rivian were in dire straights, someone would swoop in and buy them at a song. Amazon would be a contender seeing as they (like Apple) have infinite amount of capital.

Thanks. I do want Rivian to succeed and hope all this negativity passes. All these deliveries being scheduled is a welcomed sight.

 

[Tim-in-CA]

Thanks. I do want Rivian to succeed and hope all this negativity passes. All these deliveries being scheduled is a welcomed sight.

Agree ... I want them to succeed!!! I just don't think that they would evaporate if they got into a financial bind ... someone would swoop in and buy them and continue the brand.

 

[lmr]

There were two filings yesterday on this particular lawsuit:

Date Filed	Document Text
March 7, 2022​	Filing 2 NOTICE of Voluntary Dismissal by Charles Larry Crews, Jr. (Walker, Jacob) (Filed on 3/7/2022)​
March 7, 2022​	Filing 1 COMPLAINT against All Defendants ( Filing fee $ 402, receipt number ACANDC-16967763.). Filed byCharles Larry Crews, Jr.. (Attachments: #1 Certification, #2 Civil Cover Sheet)(Walker, Jacob) (Filed on 3/7/2022)​

So the lawsuit filed in California, Crews, Jr. v. RIVIAN AUTOMOTIVE, INC. et al, was dismissed without prejudice yesterday within hours of the complaint being filed. I wonder if the complainant in that case withdrew voluntarily because Block & Leviton LLP, a national securities litigation firm, also announced yesterday

that it has filed a class action lawsuit on behalf of shareholders against Rivian Automotive, Inc. (NASDAQ: RIVN) and certain of its executives for securities violations.

 

[ironpig]

This lawsuit is DOA.

If the SEC really wants to prob issues relating to the IPO and any material changes to the business plan that were withheld to pump up the price - like planing to repricing the trucks post IPO - there could be some trouble, but it's unlikely to happen and even if it does happen it's unlikely anything would come of it.

This is an overvalued stock like most EV stocks. So there's an easy explanation as to why it dropped that Rivan doesn't even have to bother defending.

 

[paariv]

I agree with @RWerksman 's comments. I haven't delved into the suit in detail but I would expect the theory to have some legs, no matter who the plaintiff is right now.

One thing I'd note is that the profound incompetence on display by Rivian's management is likely not going to be the reason for the suit to go on. Business decisions are generally untouchable so long as there's an articulable rationale, even if it's immediately proven to be laugahable.

These cases sound in fraud, and there's plenty of evidence that:
1) These cars were underpriced;
2) Rivian knew it pre-IPO, meaning it knew at IPO rices would have to rise when production began in earnest, whether or not a price increase was formally scheduled;
3) It IPOed without sufficient disclosure of that risk (dishonesty by omission);
Couple that with:
4) Stock dropped when they announced increases, and youhave the necessary elements dishonesty, investor losses, and some plausible causation.

You can also throw in: They deliberately underpriced to spike preorder numbers they'd report in the IPO, knowing that a pre-IPO price increase would hurt their narrative.

The rollback is an interesting wrinkle, but shouldn't kill the case. Arguably, the market has soured on Rivian because it now knows - via an extraordinarily large one-time price increase - that Rivian is going to be losing money on each truck for quite some time. The persistence of the stock price decline shows that the need to raise prices was a material, and nondisclosed, piece of information that investors would have wanted to know.

Even if the precise theory in the complaint isn't viable, the plaintiffs' lawyers (who will be driving the case, even after an institutional investor swoops in to serve as a more reputable class representative) should be able to cast about for a theory. If I were them, I'd also seek documents on production readiness. Seems clear that - even if Rivian talked about most of the early vehicles going to employees - Rivian wasn't truly customer ready at IPO, and you can probably find some stock decline to tie to that as well.

 

[bd5400]

There were two filings yesterday on this particular lawsuit:

Date Filed	Document Text
March 7, 2022​	Filing 2 NOTICE of Voluntary Dismissal by Charles Larry Crews, Jr. (Walker, Jacob) (Filed on 3/7/2022)​
March 7, 2022​	Filing 1 COMPLAINT against All Defendants ( Filing fee $ 402, receipt number ACANDC-16967763.). Filed byCharles Larry Crews, Jr.. (Attachments: #1 Certification, #2 Civil Cover Sheet)(Walker, Jacob) (Filed on 3/7/2022)​

So the lawsuit filed in California, Crews, Jr. v. RIVIAN AUTOMOTIVE, INC. et al, was dismissed without prejudice yesterday within hours of the complaint being filed. I wonder if the complainant in that case withdrew voluntarily because Block & Leviton LLP, a national securities litigation firm, also announced yesterday

Is that Northern or Central District of California? The firm accidentally filed the case in the Northern District of California and then immediately dismissed the case. They then re-filed in the Central District of California.

 

[nc10]

These cases sound in fraud, and there's plenty of evidence that:
1) These cars were underpriced;
2) Rivian knew it pre-IPO, meaning it knew at IPO rices would have to rise when production began in earnest, whether or not a price increase was formally scheduled;
3) It IPOed without sufficient disclosure of that risk (dishonesty by omission);
Couple that with:
4) Stock dropped when they announced increases, and youhave the necessary elements dishonesty, investor losses, and some plausible causation.

You can also throw in: They deliberately underpriced to spike preorder numbers they'd report in the IPO, knowing that a pre-IPO price increase would hurt their narrative.

I'm struggling to be sympathetic with investors that claimed to be misled. I say that as an IPO investor. We were told the R1's would be unprofitable for a long time, and that they needed to drive market share and develop other revenue streams beyond vehicle sales.

The IPO mentions: Rivian was "a growth stage company with a history of losses and expect(s)to incur significant expenses and continuing losses for the foreseeable future." Rivian also stated in the IPO: "The success of our business depends on attracting and retaining a large number of customers. If we are unable to do so, we will not be able to achieve profitability."

I was very frustrated by the large price increase just before deliveries started, and how it was executed. Some things Rivian has done to drive market interest are amazing. Some seem terrible. I don't think I had a legal case to hold Rivian to the original price for my order, either.

 

[paariv]

I'm struggling to be sympathetic with investors that claimed to be misled. I say that as an IPO investor. We were told the R1's would be unprofitable for a long time, and that they needed to drive market share and develop other revenue streams beyond vehicle sales.

The IPO mentions: Rivian was "a growth stage company with a history of losses and expect(s)to incur significant expenses and continuing losses for the foreseeable future." Rivian also stated in the IPO: "The success of our business depends on attracting and retaining a large number of customers. If we are unable to do so, we will not be able to achieve profitability."

I was very frustrated by the large price increase just before deliveries started, and how it was executed. Some things Rivian has done to drive market interest are amazing. Some seem terrible. I don't think I had a legal case to hold Rivian to the original price for my order, either.

Two points in response:

1) Projected Losses: There are a lot of reasons for being unprofitable. If a startup is investing in growth and future capacity, it may not be profitable as an enterprise but still can be cash flow positive on each individual unit. However, if (as appears to be the case with Rivian, pre-increase), each marginal unit is unprofitable, you can't make that up with future growth or scale. If they could never have been profitable at scale at the original pricing, and they knew it, that's an important nuance that they didn't disclose.

2) Customer attraction/retention: They disclosed this risk. But, at least according to the complaint, they knew at IPO that they had to raise prices, which would drive away a lot of customers. In many ways, this can cut against Rivian. Here they are saying that customer retention is key, but allegedly withholding negative information about future price increases that will materially impact that key metric.

And a third point about litigation in general: you may be right that after a full trial on the merits, a jury would say that these risks were adequately disclosed and/or the market was sufficiently aware, so Plaintiffs get nothing. However, even if you're right, that doesn't mean the suit gets tossed out at this stage.

If it is at all possible for a jury to find for the plaintiffs - here, a question of fact about whether the disclosures you highlight were sufficient - then the matter goes the distance. This is:

• expensive (tens of millions of dollars in fees);
• disruptive (the entire c-suite and many others get their emails searched and the key ones turned over to the other side, then they get deposed);
• embarrassing (your stupidest out of context emails get dissected in public);
• extremely risky (you're putting a 9-10 figure decision in the hands of 12 random strangers).

So how confident are you that a jury would agree? 75% 80%? That's pretty confident! But even at those favorable odds, if the potential liability is a billion dollars, you'll rationally pay 2-300 million or more to make this go away and avoid the risk and embarrassment.

No wonder all these plaintiffs' lawyers have their own planes.

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