Lawsuit adds to mounting setbacks for LMP, seeks class-action status

A shareholder lawsuit seeking class-action status filed late last month is the latest stumbling block for fledgling auto retailer LMP Automotive Holdings Inc., which has yet to announce financial results for its two most recent quarters and says it must restate financial statements for the three quarters prior to that.

Shareholder Chris Nguyen filed the federal lawsuit May 27 in the Southern District of Florida, alleging violations of federal securities laws and that LMP made false or misleading statements and failed to disclose adverse facts about its business.

LMP CEO Samer Tawfik and CFO Robert Bellaflores also were named as defendants.

The lawsuit came a little more than a week after LMP said it would have to restate financial statements for the first three quarters of 2021.

Those setbacks, along with earlier difficulties, have made for a rocky road for LMP, which had been a used-vehicle retailer and vehicle subscription service until buying its first franchised dealerships in 2021.

Tawfik, who had aspirations to roll up dozens of dealerships, expanded the company to eight franchised stores and four used-vehicle outlets and made several more acquisition deals that later faltered.

In February, LMP disclosed it planned to terminate seven pending purchases of 17 franchised dealerships it had under contract because it wasn’t able to obtain financing to pay for them.

The company also said it was exploring strategic options, including a sale of the company.

Tawfik did not respond last week to requests for comment on the lawsuit.

But in a regulatory filing on Friday, LMP, the company’s board of directors and defendants in the lawsuit denied the allegations and said they intended to “vigorously defend themselves.”

Nguyen’s suit said, “As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages.”

LMP’s stock price has plummeted in the past year. In 2021, the stock had traded above $20 a share. On Friday, June 3, it closed at $4.30.

LMP — which has not released its fourth-quarter 2021 or first-quarter 2022 financial results — said in a May 19 release that it would restate its financial statements for the first three quarters of 2021 because of errors described as improper identification and elimination of intercompany transactions; incorrect estimates of chargeback reserves for finance and insurance products; and misclassification of certain financial statements.

The restated numbers would come in its annual report for 2021, the company disclosed.

With the changes, revenue for the first nine months of 2021 is expected to drop by $10 million to $15 million, LMP said.

Gross profit and net income for the first three quarters of 2021 aren’t expected to be materially impacted, the company said, and the expected changes will not affect compliance with lender financial covenants associated with LMP’s debt.

But LMP said in the release that it has determined that “material weaknesses exist in the company’s internal control over financial reporting and that the company’s disclosure controls and procedures were not effective.”
The retailer said it plans to provide a remedy in the forthcoming annual report.

The lawsuit said a plaintiff class could include hundreds of shareholders.

The Law Offices of Frank Cruz in Los Angeles, a lawyer who filed the lawsuit on behalf of Nguyen, said in a news release that the proposed class period covers shareholders who bought or acquired stock between June 29, 2021, and May 19 of this year.

Cruz’s release said investors have until July 26 to file a lead plaintiff motion with the court.
LMP lost out on several large deposits as it canceled pending acquisitions this year, including one reaching $2 million.

A Connecticut Kia dealership — one of the stores set to be acquired — in late March sued LMP, alleging breach of contract and seeking $100,000 in deposits held in the failed acquisition.

Kia of East Hartford and Ash Street Holdings, plaintiffs in the case, said in an April voluntary motion to dismiss their lawsuit that the parties had agreed to a settlement. The case was closed last month.
Jet sold

LMP, after facing criticism for buying a corporate jet, said in March that it would sell its 2008 Gulfstream G200, acquired in fall 2021 for about $5.6 million.

The retailer sold the jet in April to RRGS Holdings for about $6.7 million, according to a regulatory filing.