An LMP Automotive Holdings Inc. shareholder has filed a lawsuit seeking class-action status against the fledgling auto retailer after the company disclosed last month that it would have to restate financial statements for three quarters of 2021.
Chris Nguyen filed the lawsuit Friday in U.S. District Court in Florida, alleging violations of federal securities laws and that the company made false or misleading statements and failed to disclose adverse facts about LMP’s business. LMP CEO Samer Tawfik and CFO Robert Bellaflores also were named as defendants.
“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,” the complaint states.
Tawfik did not immediately respond to a request for comment on the lawsuit.
LMP’s stock price has plummeted in the past year. In 2021, the stock had traded above $20 a share. On Wednesday, it closed at $4.29.
LMP, which has not released its fourth-quarter 2021 or first-quarter 2022 financial results, said in a May 19 news release that it would need to 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 company said it would restate the financial statement in its annual report for 2021. With the changes, LMP’s revenue for the first nine months of 2021 is expected to drop by $10 million to $15 million, the disclosure 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 news 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.” It plans to provide a planned remedy in the forthcoming annual report.
LMP had been a used-vehicle retailer and vehicle subscription service until buying its first franchised dealerships in 2021, eventually expanding to eight franchised stores and four used-vehicle outlets. Tawfik had aspirations to roll up dozens of dealerships. In February, the company disclosed it planned to terminate purchases of numerous dealerships it had under contract because it wasn’t able to obtain financing to pay for them and was considering a sale of the company.