Nikola founder indicted for misleading investors

NEW YORK -- Trevor Milton, the founder of electric truck maker Nikola Corp., has been indicted on charges of making false and misleading statements to investors, the U.S. Department of Justice said on Thursday.

The indictment said that, from November 2019 to September 2020, Milton schemed to defraud investors into buying Nikola shares through statements about the company's product and technology development.

Milton resigned in September 2020. His lawyers released a statement saying their client is innocent.

"This is a new low in the government’s efforts to criminalize lawful business conduct," the statement said.

Milton, 39, pleaded not guilty at a hearing in U.S. District Court in Manhattan to two counts of securities fraud and one count of wire fraud over statements he made from November 2019 to September 2020 about Nikola's products and technology.

Authorities said Milton relied on a public relations blitz of social media posts as well as TV and podcast interviews to drive up Nikola's stock price, become one of the world's 100 richest people and "elevate" his stature as an entrepreneur.

"Milton lied about nearly every aspect of the business," U.S. Attorney Audrey Strauss in Manhattan said at a news conference. "Today's criminal charges against Milton are where the rubber meets the road."

Bail for Milton was set at $100 million, partially secured by two homes the Oakley, Utah, resident owns.

Each criminal count carries a maximum prison term of 20 or 25 years. The U.S. Securities and Exchange Commission filed related civil charges.

Federal prosecutors and regulators have been investigating Milton for months.

“Milton sold a version of Nikola not as it was -- an early stage company with a novel idea to commercialize yet-to-be proven products and technology -- but rather as a trail-blazing company that had already achieved many groundbreaking and game-changing milestones,” according to a separate complaint filed Thursday by the SEC.

Last September, Hindenburg Research said in a paper that it was short-selling Nikola stock and labeled the company a "fraud" -- a charge it denied.

In November, Nikola said it received grand jury subpoenas related to the matter.

In February, Nikola disclosed, following a review by an outside law firm, that both it and Milton had made several statements that were partially or completely inaccurate.

Specific charges

Among the false and misleading statements Milton made, according to the indictment:

• That the company had a “fully functioning” semi-truck prototype known as the “Nikola One,” despite the fact that Milton knew that the prototype was inoperable.
• That Nikola had engineered and built an electric- and hydrogen-powered pickup truck known as “the Badger"  from the “ground up” using Nikola’s parts and technology, which he knew was not true.
• That Nikola was producing hydrogen and was doing so at a reduced cost, when “no hydrogen was being produced at all by Nikola, at any cost.”
• That Nikola had developed batteries and other important components in-house, when they were buying them from third parties.
• That reservations for Nikola’s semi-trucks were binding orders representing billions in revenue, when they were actually able to be canceled at any time “and were for a truck Nikola had no intent to produce in the near-term.”

The indictment said Milton also became preoccupied with keeping Nikola's stock price high.

It said that on March 2, 2020, the day before Nikola revealed it would go public, Milton emailed a board member that "need to make sure we are getting retail investors on our side. That is what prevents the stock short selling. This is super important to me."

The SEC said Milton targeted ordinary investors he called "Robinhood investors," portraying himself as a "different" type of CEO who would be forthright about his trailblazing company.

"Corporate officers cannot say whatever they want on social media without regard for the federal securities laws," SEC enforcement chief Gurbir Grewal said at the news conference.

Shares in Nikola closed Thursday's trading down 15 percent to $12.03.

The company released a statement in response to the indictment:

"Trevor Milton resigned from Nikola on September 20, 2020, 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 cooperated with the government throughout the course of its inquiry. 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."

Milton's lawyers, in their statement, said "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," the statement said. "Mr. Milton has been wrongfully accused following a faulty and incomplete investigation in which the government ignored critical evidence and failed to interview important witnesses.

"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."

Rise and fall

Nikola’s sudden rise and dramatic fall started a trend. EV startups including Lordstown Motors Corp. and Canoo Inc. have gone down similar tracks, merging with special purpose acquisition companies and then struggling to hold up to scrutiny after going public.

Nikola’s market capitalization has plunged from almost $29 billion in June last year to about $5 billion currently. Milton is the company’s largest shareholder with about a 20 percent stake in Nikola, according to data compiled by Bloomberg.

Nikola went public through a reverse merger with a blank-check company in June 2020, a deal made Milton into an overnight billionaire. At one point, the company’s shares ballooned to almost $80 apiece, giving it a market capitalization greater than Ford Motor Co. despite not generating any meaningful revenue.

Days after the startup’s shares debuted, Bloomberg News reported that Milton had exaggerated the capability of the company’s debut truck, the Nikola One.

Reuters, Bloomberg and Automotive News staff contributed to this report.