![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2021\/07\/Lordstown-Mess.jpg\")
<\/p>\nWall Street invents products to sell to unsuspecting “investors.” There’s always a story why this latest investment product is the greatest thing since sliced bread. Wall Street takes its profits (also called fees) up front, while sticking you, the investor, with a typically poorly-performing product. I could fill a book with stories of the junk I’ve been sold (and stupidly bought). No more.<\/p>\n
I now revel in the stories of the latest disaster. But I shy well away from them.\u00a0 The latest hot “product” is something called a SPAC — a neat acronym for a Special Purpose Acquisition Company. Wall Street has been peddling oodles of them in the last year or so.\u00a0 Most have been disasters — they’ve lost investors oodles of money.<\/p>\n
This story from today’s New York Times shows how Wall Street makes money, but not the investors who buy its products. First, today’s headline:<\/p>\n
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By\u00a0<\/span>Matthew Goldstein<\/a><\/span>\u00a0and\u00a0Emily Flitter<\/a><\/span><\/p>\n Here’s the full article. I’ve bolded the juiciest bits. It’s an amazing story:<\/p>\n The clock was ticking for David Hamamoto.<\/p>\n It was June 2020, and Mr. Hamamoto, a former Goldman Sachs executive who invested in real estate, was searching for a business to take public through a merger with his shell company. He had raised $250 million from big Wall Street investors including BlackRock, and spent more than a year looking at over 100 potential targets. If he couldn\u2019t close a deal soon, he would have to return the money.<\/strong><\/p>\n Then, around nine months before his deadline, bankers from Goldman gave Mr. Hamamoto an enticing pitch: Lordstown Motors, the fledgling electric truck maker that President Donald J. Trump had hailed as a savior of jobs. What followed was a swift merger, then a debacle that put two of the biggest forces shaping the financial world on a collision course.<\/p>\n Lordstown went public in October via a merger with Mr. Hamamoto\u2019s special purpose acquisition company, DiamondPeak Holdings. A Wall Street innovation, SPACs are all the rage, having raised\u00a0more than $190 billion<\/a>\u00a0from investors since the start of 2020, according to SPACInsider.<\/strong> At the same time, small investors have become a potent force in the markets, driving up the stock prices of companies like GameStop and lapping up shares of SPACs, which are highly speculative and can pose financial risks.<\/p>\n In Lordstown, those forces eventually collided, highlighting the uneven playing field between Wall Street and Main Street. Small investors began piling into Lordstown shares after the merger closed, attracted to the hype around electric vehicles. That\u2019s exactly when BlackRock and other early Wall Street investors \u2014 as well as top company executives, who all got their shares cheaply before the merger \u2014 began to sell some of their holdings.<\/p>\n Now Lordstown is flailing. Regulators are investigating whether its founder, Steve Burns, who\u00a0resigned<\/a>\u00a0as chief executive in June, overstated claims about truck orders. The heat is on Mr. Hamamoto. The company has burned through hundreds of millions of dollars in cash. Its stock price has plunged to $9, from around $31. Investors are suing, including 70-year-old George Troicky, who lost $864,201 on his investment, according to a pending class-action lawsuit.<\/strong><\/p>\n And Lordstown has yet to begin producing its first truck.<\/p>\n A native of Hawaii, Mr. Hamamoto began his career at Goldman Sachs, where he helped run the bank\u2019s real estate investment companies, known as the Whitehall Street funds. He became one of Goldman\u2019s youngest partners before striking out on his own in 1997. Mr. Hamamoto, 61, has owned or operated splashy hotels, office buildings and nursing homes, eventually teaming up with others to build a real estate investment firm, NorthStar Investment.<\/p>\n Stephen Cummings, who has known Mr. Hamamoto for 15 years and served on the board of one of his companies, said the investor \u201chas been successful because he is smart, creative and consistently reliable,\u201d and has always kept the interests of all his shareholders at heart.<\/p>\n In 2017, NorthStar merged with Colony Capital, a firm run by Mr. Trump\u2019s longtime ally Thomas J. Barrack Jr., to create a company with $58 billion in assets. Mr. Hamamoto left the next year, selling stock worth $27 million.<\/p>\n In early 2019, he launched his SPAC, DiamondPeak, with the intention of merging with a real estate business. By the time Goldman took Lordstown to him, Mr. Hamamoto\u2019s team had lost out on several other opportunities, a person familiar with the matter said. He was eager to do a deal.<\/p>\n Mr. Hamamoto, along with members of his team and Goldman bankers, made at least two visits to the Lordstown factory in Lordstown, Ohio, to meet with Mr. Burns in June last year, according to regulatory documents. The company also shared additional information about itself with DiamondPeak.<\/p>\n Since he knew little about electric vehicles, Mr. Hamamoto hired McKinsey to assess whether the technology that Lordstown had licensed from others could be put together to build an electric truck, several people briefed on the matter said. The consulting firm said the technology was viable, and the deal came together in weeks.<\/strong><\/p>\n Mr. Hamamoto\u2019s scrutiny of Lordstown\u2019s business was most likely far less than the inspection that a company undergoes in a conventional initial public offering. In an I.P.O., a company is held to strict reporting standards about its finances and prospects. By contrast, SPAC mergers give companies that would find it challenging to go public on their own an easier path to the public markets.<\/p>\n Lordstown also operated in an industry with one of the lowest rates of success; few start-ups have succeeded at mass producing electric vehicles. Even Tesla, the industry\u2019s breakout star, didn\u2019t deliver its first car until 2008 \u2014 five years after it was founded. And Rivian, a start-up that will begin delivering electric pickup trucks this year, has been working on its vehicles\u00a0for more than 10 years<\/a>.<\/p>\n So for a company like Lordstown \u2014 which had no revenue and no truck for sale \u2014 to succeed, having a management team that could oversee such a complicated endeavor was all the more important. But Mr. Hamamoto didn\u2019t focus much on assessing the work experience of Lordstown\u2019s management team, including Mr. Burns, who would continue to run the company after the SPAC merger, two people familiar with the matter said.<\/p>\n Mr. Burns, who fancied himself as the next Elon Musk, was known as a persuasive talker, prone to hyperbole, former Lordstown employees said. One said Mr. Burns liked to engage in \u201cmagical thinking,\u201d behaving as if he could will things into existence.<\/p>\n At the rollout of Lordstown\u2019s Endurance truck on June 25, 2020 \u2014 which was attended by Mr. Hamamoto and Goldman bankers, who by then were deep in merger talks with Lordstown \u2014 Mr. Burns was\u00a0quoted in TechCrunch<\/a>\u00a0saying the company already had 20,000 pledges to order its truck and planned to begin producing the vehicle by summer 2021. In November, Mr. Burns said there were 50,000 \u201cserious\u201d orders, and in January the number shot up to 100,000.<\/p>\n\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2021\/07\/Hamamoto.jpg\")
\nDavid Hamamoto in 2007. His special purpose acquisition company, DiamondPeak Holdings, merged with Lordstown Motors.<\/span>Credit…<\/span>Patrick McMullan<\/span><\/em><\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2021\/07\/Steve-Burns.jpg\")
\nSteve Burns, the founder of Lordstown Motors, at its plant in Ohio last year. He resigned as chief executive in June.<\/span>Credit…<\/span>Ross Mantle for The New York Times<\/span><\/em><\/p>\nA Buyer\u2019s Hubris<\/h2>\n
Magical Thinking<\/h2>\n
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