US Markets
Tuesday, September 13th, 2022 1:58 pm EDT
The founder of electric semitruck maker Nikola Motor is standing trial on fraud charges related to statements he made about the company’s technology and products, statements that federal prosecutors allege were exaggerated and misleading.
The U.S. Attorney’s Office in Manhattan has alleged that Trevor Milton, who founded Nikola in 2014, lied about “nearly all aspects of the business” during his time as chairman and CEO of the company. Those lies were intended to bolster sales of the startup’s stock, prosecutors alleged in indictments released in 2021 and earlier this year. Milton has denied the charges.
“He lied to dupe innocent investors into buying his company’s stock,” Assistant U.S. Attorney Nicolas Roos said in opening statements in U.S. District Court in New York Tuesday. “On the backs of those innocent investors taken in by his lies, he became a billionaire virtually overnight.”
The trial began with jury selection on Monday and got underway on Tuesday. Prosecutors told prospective jurors that the proceedings were likely to last about five weeks.
The trial caps a stunning rise and fall of Nikola under Milton.
The company’s stock price briefly surged to more than $90 per share in June 2020, days after it went public via a merger with a special-purpose acquisition company (SPAC). The stock run-up made Nikola – a company that didn’t yet have revenue at the time – more valuable than Ford Motor.
But its shares fell sharply after Milton was forced out of the company in September of that year, following fraud allegations made by short-seller Hindenburg Research. Both the Securities and Exchange Commission and the U.S. Department of Justice opened investigations following Milton’s departure; he was indicted on three counts of fraud by a grand jury in July 2021. Prosecutors added a fourth count in June.
Nikola’s shares closed at $5.03 apiece on Tuesday.
Milton is facing two counts of securities fraud and two counts of wire fraud, all related to statements he made about Nikola’s business while he was chairman and CEO of the company. If convicted, he could face up to 25 years in federal prison.
Milton’s attorney, Marc Mukasey, said Tuesday that Milton sought to convey a vision for the future of trucking, not to mislead investors. Mukasey has indicated that the defense plans to argue other executives at Nikola, including the company’s general counsel, signed off on Milton’s statements.
Nikola itself isn’t facing charges in this case. The SEC brought related civil charges against the company last year, but that case was settled in December after Nikola agreed to pay a $125 million fine. Milton still owns Nikola stock, but the company has otherwise cut ties with its founder.
Here’s what Milton is charged with:
Prosecutors allege that Milton made “false and misleading statements regarding Nikola’s product and technology development” as part of a “scheme” intended to induce retail investors to buy shares of Nikola. Prosecutors allege:
- Milton said that the company’s first semitruck prototype, called the Nikola One, was “fully functional” – but it wasn’t.
- A video showing the prototype truck apparently driving under its own power was created by rolling the truck — which couldn’t drive on its own — down a hill.
- Separately, Milton claimed that Nikola had engineered and built an electric pickup truck called the Badger, entirely on its own, after years of work. But, prosecutors say, the Badger was little more than “concept sketches and renderings” at the time of Milton’s initial statements.
- While the company eventually showed a prototype Badger, the show truck was in fact built by third-party vendors and based on a truck from a large automaker.
- Milton also told investors that Nikola was producing hydrogen gas — needed to refuel its fuel-cell-powered trucks — at a reduced cost; that Nikola had developed electric-vehicle batteries in-house; and that Nikola had binding orders representing “billions in revenue” for its electric trucks. All of those statements were false, according to prosecutors.
Milton is also accused of making similar misrepresentations to the seller of a ranch he purchased in 2020, in an attempt to get the seller to accept Nikola stock as part payment for the purchase.
Prosecutors are expected to begin presenting their full case against Milton to jurors on Wednesday.
—Reuters contributed to this report.
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