Denver’s Spruce Power accused of puffing up revenues by SEC

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Denver-based Spruce Power Holding Corp., which converts commercial trucks into hybrid vehicles, exaggerated revenue projections and misled investors as part of its public offering nearly three years ago, according to charges filed against the company last week by the U.S. Securities and Exchange Commission.

Spruce Power, previously known as XL Fleet before changing its name last November, went public in December 2020 through a merger with a special purpose acquisition company or SPAC.

XL Fleet, in its public filings ahead of the merger, claimed it had a 12-month pipeline of $220 million in sales and projected $1.4 billion in sales three years out, estimates the SEC called “misleading.”

The SEC alleged the future sale estimates consisted almost entirely of speculative opportunities, including sales to potential customers the company had little or no contact with, customers XL Fleet couldn’t legally sell its products to and stale prospects. The SEC also said the company claimed it was applying a historical conversion rate to its sales estimates, but that the actual conversion rate didn’t support the projections.

“It goes without saying that investors commonly rely on revenue projections when deciding how and where to invest, and that’s perhaps especially true for investment decisions involving early-stage companies in the SPAC market,” Mark Cave, associate director of the division of enforcement with the SEC said in a statement. “By linking its bold revenue projections to misleading claims about the company’s historical performance, XL Fleet misled investors by inhibiting their ability to differentiate between credible facts and mere aspiration.”

Shares of XL Fleet surged 68% on Dec. 23, 2020, the second day of trading after it merged with a SPAC called Pivotal Investment Corporation II. The shares reached $28.68 that day and on Christmas Eve, they peaked at a price of $29.78.

But early investors were left holding the bag. Shares in the company began to decline after that peak and a year later were trading for around $3.80. They closed at 66 cents a share on Monday.

In the summer of 2021, the company’s CEO Dimitri Kazarinoff blamed the company’s inability to meet Wall Street estimates on supply-chain problems that were plaguing the global economy.

“Supply-chain issues and wide-scale shortages of key materials, especially microchips, continue to impact the global automotive industry, significantly interrupting the ability of fleet customers to secure new vehicles on which our electrified drive systems are installed,” Kazarinoff told investors at the time.

The SEC order, however, found that Spruce Power, as the successor to XL Fleet, violated federal securities laws’ antifraud, proxy, and reporting provisions. Spruce Power, without admitting or denying the findings, agreed to a cease-and-desist order and to pay a civil penalty of $11 million, an amount the SEC said it adjusted in light of the company’s cooperation and efforts to correct the situation.

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