DOJ reportedly joins SEC in probing GM partner Nikola
General Motors Co. partner Nikola Corp. shares were falling as much as 7% in post-market trading Tuesday after a report that the Justice Department has joined an investigation by U.S. securities regulators into allegations that the electric and hydrogen truck startup misled investors about its technology.
The U.S. attorney's office in Manhattan is handling the inquiry for the department and is working with the Securities and Exchange Commission, according to The Wall Street Journal that cited unidentified sources. Federal prosecutors are examining whether Nikola misrepresented technological development needed for new models following accusations last week by a short-sell investor.
An SEC spokeswoman declined to comment to The Detroit News. Nikola and the U.S. attorney's office did not immediately respond to inquiries.
The claims that Nikola CEO Trevor Milton overstated the company's capabilities on numerous occasions has led the Phoenix-based startup that went public in June to lose the 40% stock gains earned after announcing a 10-year alliance with GM.
The accusations do not involve GM, but the Detroit automaker will take an 11% stake in the company and is providing Nikola its electric batteries, its hydrogen fuel-cells and manufacturing capacity. GM CEO Mary Barra on Monday told investors the company had done the "appropriate diligence."
Nikola had contacted and briefed the SEC on its concerns with the report and welcomed the agency's involvement, the company previously said. It has retained the law firm Kirkland & Ellis LLP and is working with Joele Frank, Wilkinson Brimmer Katcher, a crisis-management public relations firm.
The federal probe may not produce any formal allegations of wrongdoing. If it does, the SEC has the ability to bring forth civil charges. The Justice Department could press federal criminal charges.
Hindenburg Research's report last week accused Nikola of an "intricate fraud" by exaggerating its progress on vehicle and powertrain development. Hindenburg has a short position on Nikola, so it stands to benefit from falling share prices.
Notably, the short seller points out Milton publicly claimed in 2016 that the company had a fully functioning version of its Nikola One hydrogen fuel-cell semi-truck, but he later walked back those remarks after a Bloomberg report in June found Milton had exaggerated the truck's capability. Hindenburg cited a former employee who alleged the company made a promotional video in 2018 during which the vehicle merely was "filmed rolling down a big hill."
Nikola on Monday said it took issue with "dozens" of the claims in the report. It said the truck in the video had a functional battery and other parts, but could not be driven. The video was captioned only as "in motion," it noted. Its second-generation model, Nikola added, is able to propel itself. Hidenburg responded Tuesday, calling the explanations inadequate and a "tacit admission of securities fraud."