Romeo Power’s Ousted CEO to Receive Nearly $1 Million After Misleading Investors
The company did not have long-term agreements with top tier suppliers as ex-CEO previously suggested.
August 17, 2021
Three months ago, we published a report exposing a series of potential disclosure violations, material misstatements, and contract breaches at Romeo Power (RMO), a battery pack manufacturer for commercial electric vehicles. Since then, Romeo’s CEO and CFO have been replaced and shares have been cut in half. In the report, we detailed how Romeo’s CEO misled investors with regard to the company’s long term battery supply agreements.

Here’s an excerpt:


Six weeks after telling investors it had long term agreements with two top
battery cell manufacturers, Romeo’s CEO revealed there are none.

On March 30, 2021, during its fourth quarter earnings call, Romeos’ CEO, Lionel Selwood Jr., repeatedly named the company’s two preferred battery cell providers:

“...our preferred cell suppliers... are LG and Samsung…”

Later in the call, Selwood told analysts Romeo had signed two long-term agreements with Romeo’s preferred battery cell manufacturers:

“So, I want to be clear, it's not spot buying. We're confident in the demand outlook that we're seeing which has given us confidence to sign up for a long term agreement with our preferred battery cell providers.”

Turns out, Romeo has no long term cell supply agreements. Just six weeks later, on May 13, 2021 during Romeo’s first quarter earnings call, Selwood acknowledged Romeo was only in negotiations for long term supply agreements:

“We are well-positioned to sign an agreement shortly for multiple gigawatt hours through a long-term supply agreement with a top tier partner. We are also in active negotiations with two other battery cell partners, and we expect to begin negotiations with a fourth in the summer.”


In its latest 10-Q, Romeo referenced a long term supply agreement with a Tier 1 supplier it had signed a week earlier. On its conference call, the company confirmed the deal is its first— it referenced a single long term deal— thereby tacitly confirming its ousted CEO was not telling the truth on prior calls. Romeo’s reference of a single long term deal includes the following:

“What we can and will say is that we are excited to have signed a long-term agreement with a top-tier global supplier of battery cells, and we look forward to the possibility of expanding that relationship in the future.”

Despite clearly misleading investors, the former CEO, Lionel Selwood, will receive:

1) A $625,000 ($125,000 for giving notice and $500,000 in severance) payout
2) A minimum of $41,667 per month (up to 6 months) in return for consulting duties
3) Up to $10,000 for expenses related to terminating his apartment lease near the company’s headquarters in Los Angeles— Selwood was allowed to live in Florida as his “excellent time management skills” made it unnecessary for him to spend all of his time at the company’s headquarters

The total amounts to approximately $881,000 not counting benefits or the stock options that will continue vesting.

Our report also detailed that in addition to its JV with BorgWarner, the BWA JV is also one of Romeo’s key customers. Separate from the JV, Romeo has a services agreement by which it provides engineering and professional services to the JV. In 2020, the BorgWarner JV accounted for 35% of Romeo’s revenue. The future of this revenue stream— as well as the JV— is now in doubt following BorgWarner’s acquisition of a key battery pack competitor of Romeo.

In its latest 10-Q, Romeo disclosed the following about BorgWarner:

“The Joint Venture Support segment’s gross profit decreased by 38%, for the three months ended June 30, 2021, due to a decrease in the engineering support provided to the BorgWarner JV as compared to the same period in the prior year.”

On the earnings call, Romeo provided a sterile response when asked about its relationship with BorgWarner:

“Our relationship with BorgWarner and our joint venture with BorgWarner remain in place since our commitment to the joint venture is entirely unchanged.”

Forty-three percent of Romeo’s backlog, at the time of our original report, hinges on Nikola, another comercial EV designer accused of misleading investors with an uncertain future. Romeo can’t fulfill the Nikola purchase agreement without help. The agreement requires Romeo to design custom battery packs for Nikola, which Romeo acknowledges it can’t do without help from its JV partner BorgWarner.

Since Romeo owns just 40% of the JV— and certain sales to Nikola and possibly other customers will be run through the JV rather than Romeo alone— it’s an admission that Romeo will never recognize all of the revenue currently in its backlog.

It’s one reason we suspect Romeo’s founder Michael Patterson abruptly quit the company but not in April as Romeo has disclosed. Our investigation revealed one month after Romeo began trading publicly— and months before Romeo disclosed a related party transaction— Patterson founded Battle Motors, which acquired Crane Carrier, a commercial truck manufacturer now negotiating a supply agreement with Romeo.

In its latest 10-Q, Romeo added the following language (bolded and underlined) to its original disclosure regarding Patterson:

“On April 15, 2021, Michael Patterson ended his employment with Romeo, resigned from all positions he used to hold in the Company, the Board of Directors and the BorgWarner JV board of directors, and we entered into a consulting agreement with him for services to be provided through the end of 2021. On May 5, 2021, we signed a non-binding Memorandum of Understanding with Crane Carrier Company (“CCC”) to explore the terms of a potential commercial relationship in which we would supply batteries to CCC for its electric refuse trucks. CCC was recently acquired by Battle Motors, a company founded by Michael Patterson, and Mr. Patterson is the Chief Executive Officer of both CCC and Battle Motors.

The new language doesn’t provide Romeo with any additional protection regarding disclosure requirements or its fiduciary duty. While Patterson was an executive with Romeo, he was also working behind the scenes to launch Battle Motors. This is a violation of his employment agreement as he was to devote all of his time to Romeo. It may also be a breach of RMO’s fiduciary duty to shareholders if it knowingly allowed an executive to devote his attention to non-Romeo endeavors.

We also documented Patterson, Battery’s founder, controlled Crane Carrier on or before March 8th— nearly two months before Romeo disclosed the related party transaction. It means Romeo failed to disclose a conflict of interest— Patterson remained a consultant at $25,000 per month and was also negotiating a supply agreement with Romeo on behalf of another firm, Battle Motors.

Separately, if the new language is an attempt to clarify Patterson’s departure from Romeo, it doesn’t do anything to address concerns over whether Patterson pledged his Romeo shares as collateral for a loan. Romeo’s board approved a special deal allowing Patterson to mortgage his Romeo shares weeks before he took control of Crane Carrier.

Patterson, as of the writing of our original report, had not disclosed whether he had pledged shares for a personal loan as required by law. If he did— and used the money to purchase Crane Carrier— such a disclosure would be important to investors as we noted in the report:

“Romeo’s shares plunged...since the board made the exception for Patterson. If he did pledge the 6 million Romeo shares to purchase Crane Carrier, Patterson may be required to post... additional collateral as executives at doomed companies have in the past. If he wishes to do so with additional Romeo stock, it would require the board to convene and make another exception for a part-time consultant. If the collateral required is cash, Patterson might have to liquidate millions of shares, which could drive down the share price.”

Given the uncertainty— none of the analysts on the earnings call asked the questions we suggested they should— as well as the ousted CEO’s history of misstatements, we note the following revelation in the latest quarterly report, which is a reference to a filing announcing the recent battery supply agreement:

“The content of that 8-K is accurate…”
Related: SLDP, ENVX, QS, BWA, CMI, QS
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