Grand jury indicts Nikola founder on three counts of fraud

A federal grand jury has charged Nikola Corp. founder Trevor Milton with three counts of criminal fraud for making false statements to investors in the electric vehicle (EV) startup.

According to a criminal indictment unsealed July 29 by federal prosecutors in New York, Milton—who resigned as company chairman in September—was charged with misleading investors from November 2019 until around September 2020.

As reported by Bloomberg, he voluntarily surrendered to federal custody and was freed by a judge on $100 million bail after pleading not guilty. The bail was secured by a 2,700-acre ranch in Utah owned by Milton, who promised to limit his travel and not to contact investors.

“In order to drive investor demand for Nikola stock, Milton lied about nearly every aspect of the business,” U.S. Attorney for the Southern District of New York Audrey Strauss said in a press conference.

A separate complaint was also filed by the Securities and Exchange Commission (SEC) for fraud charges against Milton. CNBC reports the SEC asked the U.S. District Court of the Southern District of New York to permanently bar him from acting as an officer at a company that issues securities, to disgorge all ill-gotten gains and pay a fine.

Throughout the investigation, Milton has maintained that he’s innocent. His legal team, led by Brad Bondi, said Milton was “wrongfully accused following a faulty and incompetent investigation,” and that justice won’t be served until he’s exonerated, according to an emailed statement to CNBC.

Meanwhile, prosecutors said Milton had built an intricate scheme designed to pump up the company’s stock for his own gain by lying about the company’s products, technology and future sales prospects. They accuse him of using Nikola’s deal to go public via a special purpose acquisition company to target amateur retail investors, some of whom lost hundreds of thousands of dollars.

“Milton’s scheme targeted individual, non-professional investors—so-called retail investors—by making false and misleading statements directly to the investing public through social media, and television, print and podcast interviews,” states prosecutors in the 49-page indictment.

These accusations were first made known in a Sept. 10 report by Hindenburg Research, titled “Nikola: How to Parlay an Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” In the report, the research firm claims Milton misled partners by falsely claiming to have proprietary technology and for engaging in numerous acts of deception related to the capabilities of the company’s electric vehicles.

“We have never seen this level of deception at a public company, especially of this size,” the authors of the report write.

Nikola initially denied the claims by Hindenburg, which was betting against its shares. But Milton resigned later that month, and in February the company said an internal review of claims about its technology concluded the startup and its founder made several inaccurate statements, reports Bloomberg.

As the company dealt with months of turbulence following the accusations, Nikola experienced a plunge in market capitalization as deals with both General Motors Co. and Republic Services Inc. were cancelled.

As reported by Waste Today, Nikola Corp. issued a release Dec. 23 announcing the company’s partnership with Republic was off. Republic initially announced the agreement to purchase 2,500 electric waste and recycling collection trucks from Nikola in August 2020, with estimated delivery dates starting in 2023. The deal was expandable to 5,000 vehicles over the life of the agreement. (Read the details of the agreement in the Sept. issue of Waste Today).

“After considerable collaboration and review, both companies determined that the combination of the various new technologies and design concepts would result in longer than expected development time, and unexpected costs. As a result, the program is being terminated resulting in the cancellation of the previously announced vehicle order,” Nikola stated in a press release.

The grand jury for the case states that Milton should forfeit all property “traceable to the commission of said offenses,” which would likely include the more than $1 billion he earned when Nikola went public in June 2020.

Nikola’s stock has plunged 15.2 percent to $12.03 following the July 29 hearing, a steep drop from its all-time high of $93.99 on June 9, 2020, days after the company went public.

John Coffee, a securities law professor at Columbia University, told CNBC it would likely be in Milton’s best interest to seek a plea deal. He said the claims made by federal prosecutors “are not nuanced ones over which there can be a reasonable argument.”

“If he is rational, Mr. Milton should seek a plea bargain,” he said.