Nikola founder Trevor Milton charged with securities, wire fraud
The founder and former executive chair of electric and hydrogen-powered truck startup Nikola Corp. surrendered and pleaded not guilty to criminal charges alleging he made false and misleading statements to investors about "nearly all aspects of the business."
Federal prosecutors in Manhattan charged Trevor Milton with two counts of securities fraud and one count of wire fraud in an indictment unsealed Thursday. They accused Milton of taking part in an alleged scheme to defraud investors by encouraging them to purchase shares of Nikola with false statements about the development of the company's products and technology from November 2019 through September 2020.
"During that time, Milton falsely and brazenly made false and misleading claims about the status of Nikola's technology," U.S. Attorney Audrey Strauss said at a news conference in New York. "Retail investors were listening. His statements helped to convince them to buy Nikola's stock, but what they heard them say was not true."
Some investors who purchased shares lost hundreds of thousands of dollars, Strauss said. The U.S. Securities and Exchange Commission also filed a civil complaint against Milton. Nikola's stock tumbled more than 15% Thursday, closing at $12.03 per share.
The case highlights the precarious position of EV startups when it comes to discussing their efforts and technology and the risks investors face when evaluating startups. Federal prosecutors also are investigating statements made by electric pickup truck startup Lordstown Motors Corp.
Milton resigned from Nikola in September amid allegations of fraud by short-seller Hindenburg Research betting against the startup, which prompted a federal investigation. At the time, Milton tweeted he would defend himself against accusations that the company made false claims about its vehicles.
The report was preceded by the announcement that General Motors Co. would invest in Nikola and build its electric Badger pickup truck. Following the report, the companies scaled down the deal to a supply agreement that would have GM provide its Hydrotec fuel cell system for Nikola’s semi-trucks.
Nikola in February recognized nine "inaccurate" statements made by its founder and the company following an internal review. The startup said it has cooperated with the government over the course of its probe.
"Trevor Milton resigned from Nikola on September 20, 2020 and has not been involved in the company’s operations or communications since that time," the company said Thursday in a statement. "Today’s government actions are against Mr. Milton individually, and not against the company.
"We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities."
Prosecutors accused Milton in the indictment of making false and misleading statements through social media and television, print and podcast interviews about the company’s product and technology development.
In a statement, a spokesperson for Milton's legal team said he is not guilty of the charges against him: "Trevor Milton is innocent; this is a new low in the government’s efforts to criminalize lawful business conduct. Every executive in America should be horrified. Trevor Milton is an entrepreneur who had a long-term vision of helping the environment by cutting carbon emissions in the trucking industry."
U.S. attorneys allege Milton made statements that the company had a "fully functioning" semi-truck prototype when he knew the prototype was inoperable and that Nikola had engineered and built an electric pickup truck from the "ground up" when it was modified from purchased Ford F-150 pickup trucks.
They claim Nikola was producing hydrogen at a reduced cost when no hydrogen was being produced; that the company had developed in-house batteries and other components when it was acquiring them from third parties; and that reservations for Nikola's semi-trucks were billions of dollars in binding orders when the vast majority could be cancelled at any time and were for a truck Nikola had no intent to produce in the near-term.
Nikola went public through a reverse merger with a special-purpose acquisition company in June 2020. Milton became a billionaire overnight with approximately $8.5 billion value in shares, according to the indictment. At one point, the company’s shares surpassed Ford Motor's Co. at almost $80 apiece, despite not producing any trucks for sale. Nikola's market capitalization has plunged to about $5 billion, a roughly 80% drop from June last year.
The indictment against Milton also emphasizes Nikola's decision to go public via a special-purpose acquisition company instead of a traditional initial public offering, which requires the company partake in a quiet period during which it can only discuss information filed publicly. SPACs do not require a quiet period.
Northeast Ohio-based Lordstown Motors earlier this month disclosed federal prosecutors are probing statements made about preorders of its Endurance electric pickup trucks and its SPAC merger with DiamondPeak Holdings Corp. Its CEO and chief financial officer resigned last month following a report from Hindenburg Research, which questioned the number of preorders the company claimed to have received.
Gurbir Grewal, director of the Securities and Exchange Commission’s division of enforcement, encouraged investors to do their research before putting their money into a stock.
"This case is about the obligation of corporate officers like Milton to provide complete truthful and accurate information at all times when discussing their companies' affairs," Grewal said during the Thursday news conference. "There is no end-around or exception to this obligation. It applies to all public companies, even those that have only recently entered the public markets, including through SPAC transactions."
The Associated Press contributed.