Turmoil resurfaces in Faraday Future: Founder Jia caught in minority shareholders' conspiracy
FF's first production-intent car, the FF91.

Asian Tech Press (June 2) -- California-based electric car maker Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE), also known as FF, has seemingly eased its delisting crisis temporarily, as it formally filed its first quarter 2022 financial results on May 24, local time.

Apparently, it seems that the Nasdaq-listed newcomer can finally turn its full attention to getting on the right track with secondary fundraising and delivery of the FF 91, FF's flagship luxury electric vehicle and first production-intent car.

But under the calm surface of the sea, there have always been rough currents. It is not difficult to find that FF and its founder, Yueting Jia, or YT Jia, are in an unprecedented predicament through the analysis of the EV maker's Q1 earnings and information from various sources.

What has led to FF's internal investigation for more than six months? Who should be responsible for the losses of FF and FF's shareholders? Does the company still need YT Jia or not?

The details and truths of the turmoil surfaced one by one through multiple sources of information collection and interviews, where minority shareholders colluded with independent directors to control the FF board and suppress Chinese executives represented by YT Jia, even pushing the company to the brink of bankruptcy.

Behind the "internal investigation": Short-seller report is a good excuse?

Back in October 2021, had successfully listed on Nasdaq for just under three months, had completed product development, and was methodically advancing pre-delivery supply chain support and final test and validation, with the shares staying at around $10.

At the same time, FF was about to file its third quarter earnings results and Form S-1 registration statement for a PIPE offering, and the construction of the Hanford plant had dispelled external doubts with the unveiling of seven production milestones.

It was on a positive track in terms of employee morale, support from external stakeholders and the expectations of PIPE investors. "A short seller report and a bad decision by the board changed all that," said a person familiar with the matter who was not without regret.

In October last year, a small, little-known company released a short seller report against Faraday Future, claiming that the company was working on a new "electric vehicle scam" and could not build a car at all.

The short seller report aroused heated debate in the market, and FF investors gave feedback through various channels hoping for a public explanation and response from the company.

FF founder Yueting Jia responded via China's Twitter-like platform Weibo, saying the report was "pure nonsense", but then quickly deleted his post. Sources close to the matter said that such "posting and deletion at once" were the result of the FF board's pressure on Yueting Jia.

But what is even more shocking is that FF's board of directors quickly set up a special committee and hired an external law firm to conduct a so-called "internal investigation" because of an ordinary short-selling report.

The move left behind the risk of delaying earnings announcements, of FF 91 delivery and of damage to shareholders' interests, which has become the source of FF's delay in reporting earnings and delisting crisis for more than six months.

An analyst familiar with the U.S. stock market explained that short-selling report is very common in the U.S. stock market, and many companies make a living by fabricating short-selling reports on listed companies and making profits from them. The vast majority of listed companies ignore short-selling reports, while a few may respond directly. But it is extremely rare to launch an internal investigation. For example, although Tesla is probably one of the most shorted companies in the electric vehicle industry, it has never conducted any internal investigation.

From the results, FF shares have been on a rollercoaster ride, falling by 70% or more, and the company's investors have been complaining. The automaker has so far been unable to register a private investment in public equity (PIPE) offering, and even its employees, nearly all of whom hold the company's shares, have complain incessantly. To make matters worse, the delayed earnings results have also closed FF's window for secondary fundraising.

More importantly, the gigantic internal investigation, while almost completely rejecting allegations in the short-seller report, did not yield any valuable findings. However, the FF board successfully sidelined founder YT Jia and the Chinese executives around him through the probe.

PSAC CEO Jordan Vogel and his elder brother Scott Vogel, FF's SPAC listing partners, and Susan Swenson, an independent director who retired many years ago, became the biggest beneficiaries from the investigation.

The Vogel brothers have almost complete control of the FF board, and Susan Swenson, who as chair of the special committee, wasted significant corporate resources leading the internal investigation that resulted in huge losses to shareholders, became executive chairperson of FF while reaping significant financial benefits. Former Chairman Brian Krolicki, who was the first person responsible for launching the internal investigation, has only resigned as chairman, while remaining an independent director.

YT Jia, who sees the control rights of the company as incredibly important, has had to accept the reality that the board of directors controls the listed company from the moment FF went public. And after the internal investigation, the board of directors, which is controlled by a small number of independent directors, has excluded Jia from the top management.

The Independent Directors' scheming: The Steve Jobs incident was a close call

"Although it is improbable to tell the real reason behind the FF internal investigation and the delay of the financial report, there are only two possibilities. One is that the independent directors hired by FF are too unprofessional and failed to make an accurate assessment on the risk of the internal investigation affecting the financial report and thus made a wrong decision.

"The other is that certain independent directors of the FF board have cunningly used the short-selling report to legally and compliantly ostracize YT Jia and his Chinese team. The same drama as when Steve Jobs was thrown out of the company by the board of directors may be playing out," said the aforementioned U.S. stock analyst.

From the results of the internal investigation and rectification efforts, although Jia retains the position of Chief Product and User Ecosystem Officer (CPUEO), his terms of reference have been greatly weakened. The removal of the "executive officer" title, although only a symbolic position in a US-listed company, is a clear signal that Jia has been sidelined from top management.

A number of Chinese executives, including Jia's nephew, Jiawei Wang, were forced to leave the company. But the former chairman Krolicki, who should have been responsible for the huge stockholders losses resulting from the internal investigation, still retains his seat as an independent director. And the company's CEO Carsten Breitfeld was only punished with a pay cut.

Jordan Vogel, CEO of PSAC, who should have been jointly responsible for alleged incomplete or potentially misleading disclosures, not only received no penalty, but instead joined his elder brother and some independent directors to become the de facto controller of the FF board. Jarret Johnson, FF's general counsel, became the scapegoat, but the external law firm continued to serve the company and the board without any penalty.

"Although we have no way of knowing too many details, the results show that the independent directors, who only hold single-digit shares, have controlled the FF board through so-called 'legal and compliant' means, sidelining and even discrediting founder YT Jia, which is a wake-up call for all entrepreneurs in multinational ventures," the aforementioned source said.

The sources noted that, more importantly, the internal investigation, which wasted a lot of resources and time and caused serious consequences and shareholder losses, did not deter the SEC from intervening. FF has officially announced that the SEC was going to launch a further inquiry into FF's internal investigation matters, which also cast doubt on the necessity and reasonableness of the internal investigation launched by FF.

"Scapegoat" YT Jia: The bitterness of Chinese multinational entrepreneurship

"Financial fraud", "liar", "being responsible for the loss of shareholders" -- the internal investigation which led to a plunge in share prices and delisting crisis made YT Jia become the target of public attack and the biggest "scapegoat" from the incident. But strangely, Jia did not make any explanation for it.

The aforementioned U.S. stock analyst said that U.S. listed companies have a strict spokesperson system, and any public statements have to be approved by IR, legal, and even the board of directors. It is not confirmed whether YT Jia is one of FF's external spokespersons, but even if he is a spokesperson, his explanation will most likely not be approved by the board of directors.

After the Q1 financial report was filed, FF founder Yueting Jia remained silent and did not make any comments on the company's ostensible return to the right track, which seems to indicate that the situation of FF, which Jia regards as his life, is not as good as it should be.

FF's Q1 earnings report shows that as of March 31, 2022, the company had a cash balance of $276 million and liabilities of $271 million, which also means that if the secondary fundraising is not successful, FF will even have to face bankruptcy restructuring.

The aforementioned U.S. stock analyst said that the most fundamental reason why FF's board of directors did not completely exclude YT Jia is that Jia has top-notch capabilities in strategic planning, product definition and development, and user ecosystem creation. Without Jia, FF would quickly fall into a mediocre company.

The analyst added that the only path for FF to really get on track is that Yueting Jia can actually take back control of the company.

It is not uncommon for founders to be sidelined by their boards, but YT Jia, a Chinese entrepreneur, building a Nasdaq-listed company in the U.S. in the electric vehicle industry would have been a not-so-small miracle. Despite the setbacks Jia is experiencing, his entrepreneurial experience is certainly a useful reference for other entrepreneurs who want to develop their business in the U.S.

"I left FF because I was concerned about the company's growth prospects. Independent directors with no background in the auto industry controlling the FFIE board, internal investigations that took a lot of time and budget and delayed financial results, all of which led to the company’s shares keeping falling, and my personal stock options have become a scrap of paper," said a former FF employee who declined to be named.

"If unable to secure secondary fundraising, the company would also face capital exhaustion and delivery of FF 91 would inevitably be affected, which is not what I expect FF should be," the former employee said, "If Yueting Jia can regain control of the company, I would also be willing to consider returning to FF."

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