Nikola founder Trevor Milton charged with fraud in indictment
Hydrogen-powered truck manufacturer Nikola Corp. took another hit after the founder and former CEO Trevor Milton was indicted on charges in a securities fraud scheme.
On Thursday, July 29, the U.S. Attorney’s Office for the Southern District of New York unsealed the criminal indictment charging Nikola founder Trevor Milton with securities and wire fraud. The indictment accuses Milton of defrauding and misleading investors about developments of products and technology by Nikola.
According to the indictment, Milton made false and misleading statement to nonprofessional investors through social media and television, print and podcast interviews. It alleges that Milton made those statements in an attempt to induce those investors to buy Nikola stock. Alleged false claims include Nikola had done the following:
- Had early success in creating a “fully functioning” semi-truck prototype known as the “Nikola One,” when Milton knew the prototype was inoperable.
- Engineered and built an electric- and hydrogen-powered pickup truck known as “the Badger” from the “ground up” using Nikola’s parts and technology, when Milton knew that was not true.
- Produced hydrogen and was doing so at a reduced cost, when Milton knew that in fact no hydrogen was being produced at all by Nikola, at any cost.
- Developed batteries and other important components in-house, when Milton knew that Nikola was acquiring those parts from third parties.
- Reservations made for the future delivery of Nikola’s semi-trucks were binding orders representing billions in revenue, when the vast majority of those orders could be cancelled at any time or were for a truck Nikola had no intent to produce in the near-term.
During a filmed and broadcasted unveiling event in December 2016 for Nikola One, Milton claimed the truck “fully functions and works, which is really incredible.” As recently as last year, Milton made false claims about the truck.
“When our company first announced the Nikola One semi truck in 2016, most other brands said zero emission would never work,” Milton said in March 30, 2020, merger announcement. “Wow, were they wrong.”
However, the truck showing during the 2016 event was never tested, validated or completed. In fact, the truck was missing important parts, including gears and motors, and the control system was incomplete.
“The infotainment system in the cab was also incomplete,” the indictment claims. “Instead, for the purpose of the unveiling event, tablet computers or other computer screens were mounted into the areas where the screens for the infotainment would be, and the screens were set to display images created to have the appearance of infotainment screens, with speedometers, maps, and other information displayed. Further, the truck was towed onto the stage at night prior to the event, and the screens and lights were powered by an external battery and a power cord running under the truck to the wall, which had to be manually disconnected as the stage spun.”
Additionally, the truck was connected to an air line to keep its air suspension and air brakes operating due to a leak in the air supply. Nikola staff operated the headlights with a remote control during the event.
Doubling down on the alleged lies, the indictment claims that more false information was posted on Twitter in January 2018.
Milton published on Nikola’s and his own Twitter account a video showing the Nikola One driving on its own power down a road with no incline. According to the indictment, the truck was actually towed to the top of a hill, where the person behind the wheel released the brakes, sending the truck rolling down the hill.
Behold, the Nikola One in motion. Pre-production units to hit fleets in 2019 for testing. The Nikola Hydrogen Electric trucks will take on any semi-truck and outperform them in every category; weight, acceleration, stopping, safety and features – all with 500-1,000 mile range! pic.twitter.com/K53FdYaZ34
— Nikola Motor Company (@nikolamotor) January 25, 2018
In addition to false claims about the Nikola One, Milton is accused of similarly egregious false statements about the company’s Badger pickup truck, vehicle reservations, in-house technology and hydrogen production.
Milton has been charged with two counts of securities fraud and one count of wire fraud. According to a news release, the securities fraud counts carry maximum penalties of 20 and 25 years in prison, respectively. The wire fraud count carries a maximum penalty of 20 years in prison.
“This defendant allegedly concealed the progress and success of Nikola’s technology, when he lied to investors and lured them into believing that they had invested at the ground floor of a company that had already developed viable Nikola One and Badger prototypes that were ready to be produced,” Inspector-in-Charge Phillip R. Bartlett said in a statement. “The one thing fraudsters have in common – they’re liars, cheaters and thieves.”
According to Forbes, Milton’s wealth plummeted from June 2020 high of $8.7 billion to $1.1 billion within a day, including a 15% downward spiral of Nikola stock prices.
Milton’s fortune took a bigger hit in September 2020 after investment research firm Hindenburg Research released a scathing report highlighting most of the damaging information contained in the indictment released on Thursday. Within two weeks, Nikola stock took a 35% nosedive. Subsequently, Milton removed himself as Nikola’s CEO while denying Hindenburg’s allegations.
In an interview with Land Line, current Nikola CEO Mark Russel said that the battery-electric Nikola Tre will be introduced to the North American market at the end of 2021 for launch customers, with the fuel cell version of the Two and Tre available in 2023. The Nikola Two is a day cab version of the Nikola One. No specific claims were made about the Nikola One. LL
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