Electric vehicles updates
Sign up to myFT Daily Digest to be the first to know about Electric vehicles news.
Nikola founder Trevor Milton has been charged by US federal prosecutors with misleading investors about the electric truck start-up’s products and technology.
The US attorney’s office in Manhattan accused Milton, who stepped down as chair of Nikola last year, of defrauding investors by using “false and misleading statements” to convince them to buy shares in the company.
Milton was taken into custody on Thursday morning in New York. He entered a plea of not guilty and was released on $100m bail.
“This is a very straightforward case,” said Audrey Strauss, US attorney for the southern district of New York. “Milton told lies to generate demand for Nikola stock.”
He was charged with two counts of securities fraud and one count of wire fraud in an indictment unsealed on Thursday. The Securities and Exchange Commission also filed a civil complaint against Milton.
Federal prosecutors allege that Milton targeted “thousands” of retail investors by speaking directly to them via social media, television, print and podcast interviews, according to the indictment. It said that many of these investors had no prior experience in trading and were buying stocks to supplement lost income from the pandemic or to pass time while in lockdown.
“The value of Nikola’s stock, including stock held by retail investors, plummeted after certain of Milton’s statements were revealed to be false and misleading,” the indictment said. As a result, some investors sustained thousands of dollars in losses, “including, in certain cases, the loss of their retirement savings or funds that they had borrowed to invest in Nikola,” the indictment stated.
Milton’s lawyers called the case “a new low in the government’s efforts to criminalise lawful business conduct.”
“From the beginning this has been an investigation in search of a crime. Justice was not served by the government’s action today, but it will be when Mr Milton is exonerated,” they said in a statement.
Prosecutors listed several allegedly false and misleading statements from Milton, including claims that the Nikola One truck was a working prototype despite lacking propulsion; that Nikola had developed batteries and other components, when it was acquiring them from suppliers; and that truck reservations were binding orders worth billions in revenue, when most could be easily cancelled.
The indictment also included details about a video seized on by the company’s detractors, which depicts the Nikola One rolling down a hill because it cannot move under its own power. The truck’s door was built of minivan parts and “had to be taped up during the shoot to prevent it from falling off”, the indictment said.
The vehicle’s turbine, designed to run on natural gas, and batteries were removed before the commercial shoot to mitigate the risk of fire, the indictment said.
Milton aspired to be among Forbes’ 100 richest people, the US indictment said, and was motivated “to enrich himself and elevate his stature as an entrepreneur”. The value of his stock grew from $844m when the company went public to $8.5bn at Nikola’s peak.
According to the indictment, Milton was keenly focused on the company’s share price and the flood of users buying the stock on trading app Robinhood. When a senior executive pointed out the hype among retail investors, Milton allegedly responded, “That’s how you build a foundation. Love it.”
Nikola said that Milton resigned on September 20 “and has not been involved in the company’s operations or communications since that time. Today’s government actions are against Mr Milton individually, and not against the company. Nikola has co-operated with the government throughout the course of its inquiry.”
The company said it still planned to deliver Nikola Tre battery-electric trucks later this year.
Nikola shares fell more than 9 per cent on Thursday. It went public in June last year through a merger with VectoIQ Acquisition, a blank-cheque company set up by former General Motors executive Stephen Girsky.
Its stock price shot up to as much as $80 following its public debut before plummeting on the release of a short seller report from Hindenburg Research, which alleged that the company was an “intricate fraud”. An internal investigation by the company found that nine of Milton’s statements were wholly or partly inaccurate.
The charges against Milton come amid growing concerns from regulators that retail traders do not understand the risks of investing in special purpose acquisition companies. The SEC has recently issued a number of statements warning investors about the outsized benefits that insiders receive from the transactions, and has begun closely scrutinising deals.
While Strauss declined to comment on other Spacs, “we identified something about the Spac structure that allowed him to do some of the things we are alleging to be criminal”, she said.
Gurbir Grewal, head of the SEC’s enforcement division, said the case “also demonstrates that corporate officers cannot say whatever they want on social media with disregard to securities law”.