Faraday & Future Inc. was sued for $106 million Jan. 3 by its former general counsel, who claims in Manhattan federal court that the electric car startup lured him away from a Mayer Brown LLP partnership by fraudulently overstating its prospects.
Top Faraday executives used false claims about a pending $2 billion investment to get Hong Liu, a China expert, to abandon his lucrative practice and move his family from New York to California, according to the lawsuit. It was filed in the U.S. District Court for the Southern District of New York.
The major investment never materialized, and Liu alleges he was fired after less than a year without receiving the compensation he’d been promised: $6 million in cash and 20 million shares—valued at $100 million—in Faraday affiliate Smart King Ltd.
Liu lost his job in February, essentially for doing it, according to the complaint.
Faraday executives who ran the company as a “tightly and secretively controlled” operation had little patience for his attempts to ensure compliance with basic workplace, immigration, and securities laws, the suit says.
It also targets Smart King, which is registered in the Cayman Islands, and two senior Faraday executives.
One of them is a nephew of Chinese billionaire Jia Yueting, the founder, owner, and chief executive of Faraday and Smart King, according to the complaint. Jia, who’s worth $3.8 billion, filed for bankruptcy in the U.S. in October. That case took a contentious turn last month.
Shrinking Legal Group
Liu is one of at least nine in-house lawyers to have left Faraday since late 2018.
In October of that year, the Los Angeles-based company furloughed dozens of employees, including members of its law department.
Some of those who departed had been hired in early 2018 after Faraday received the first installment of what was supposed to be a $2 billion investment from Chinese real estate conglomerate Evergrande Group, a pair of former in-house attorneys at Faraday said. The lawyers requested anonymity in discussing Faraday matters due to non-disparagement agreements included in their severance packages.
When the rest of Evergrande’s investment failed to materialize, Faraday’s financial future took a turn for the worse. Liu’s suit claims that Evergrande invested only $800 million by mid-2018 before terminating its relationship with Faraday’s Smart King affiliate.
Among those to subsequently exit Faraday’s in-house ranks were former head of litigation Ian Eisner, an assistant general counsel who returned to Winston & Strawn’s Los Angeles office as a partner in late 2018, and assistant general counsel Sheryl Skibbe, a labor and employment attorney who rejoined Seyfarth Shaw as a partner in October 2019. Neither lawyer responded to a request for comment about Liu’s suit or their time at Faraday.
Bloomberg data show that the law firms Fish & Richardson, Irell & Manella, and Quinn Emanuel Urquhart & Sullivan have handled litigation work for Faraday in recent years. O’Melveny & Myers, Pachulski Stang Ziehl & Jones, and Delaware law firm Bayard are advising Jia, Faraday’s founder, on his personal bankruptcy case filed in Wilmington, Del.
A former in-house lawyer at Faraday told Bloomberg Law that the company’s law department is now led by Jarret Johnson, who joined Faraday as an assistant general counsel in 2018. Johnson didn’t respond to a request for comment about the litigation filed by Liu, nor did a Faraday spokesman and two other in-house lawyers who remain with the company, Skyler Lund and Brian Fritz.
James Chen, a former general counsel at Faraday who left the company in 2016, and now serves as in-house legal chief and vice president of government relations at rival electric vehicle maker Rivian Automotive LLC, also didn’t respond to a request for comment about Liu’s claims. Chen testified before Congress last fall to encourage federal government investment in energy efficient technologies.
Cause of Action: Breach of contract; section 10(b) of the Securities Exchange Act and SEC Rule 10b-5; fraudulent inducement; wrongful termination; intentional infliction of emotional distress; negligent misrepresentation.
Relief: $6.4 million in damages; an order requiring immediate vesting of Liu’s shares; costs, fees, and interest.
Response: Faraday didn’t immediately respond to a Jan. 3 request for comment. Contact information for Smart King wasn’t available.
Attorneys: Liu is represented by Seiden Law Group LLP.
The case is Liu v. Faraday & Future Inc., S.D.N.Y., No. 20-cv-19, complaint filed 1/3/20.