Nikola founder Trevor Milton charged with securities fraud

In a wake-up call to a prosperous corner of Wall Street, federal authorities on Thursday filed criminal and civil securities fraud charg...

In a wake-up call to a prosperous corner of Wall Street, federal authorities on Thursday filed criminal and civil securities fraud charges against the founder of Nikola – a start-up car maker that went public by merging with an investment company last year.

An indictment by the U.S. Attorney’s Office in Manhattan accused founder Trevor Milton of misleading investors – especially individual investors – about the battery-powered and hydrogen-powered vehicle technology he hoped for to manufacture. In a separate civil case filed Thursday, the Securities and Exchange Commission also charged Mr. Milton with securities fraud.

The two legal filings are the biggest lightning bolts that prosecutors and securities regulators have brought to the supercharged marketplace of investment vehicles known as special purpose acquisition companies, which regulators and some investors have brought to the market. argues that they are plagued with potential problems. Other cases of this type could be filed in the coming months; regulators are investigating several other companies and executives in similar circumstances.

The investment vehicles, called SPAC, have raised nearly $ 200 billion in initial public offerings for the express purpose of finding and buying a running business. If SPACs don’t buy a business within two years, their sponsors, often professional investors or Wall Street bankers, must return the money they’ve raised – a provision that critics say encourages them to return. buy fragile or unproven businesses.

The PSPC boom has coincided with and has been spurred on by retail investors who share trading tips and strategies on social media, often deciding in droves to buy the shares of companies they deem to be undervalued or destined for greatness. These individual traders, often encouraged by professional investors or business executives, have helped drive up the stock prices of various companies, including GameStop, AMC Entertainment, and Tesla.

Prosecutors and the SEC said that for nearly a year, Mr Milton had used social media, television and podcasts to broadcast “false and misleading statements about Nikola’s product and technology.”

One such misleading statement, according to the indictment document filed by prosecutors, concerned the company’s Nikola One long-haul truck prototype. The prototype didn’t work, contrary to Mr. Milton’s glowing statements about it.

Federal prosecutors and securities regulators began investigating Nikola last fall, around the time an investment firm issued a report questioning his products and some of Mr Milton’s claims. . That company, Hindenburg Research, said the company posted a promotional video suggesting it had a working prototype – but never revealed that the truck was moving forward only because it was rolling down a stalled hill. Mr. Milton resigned a few weeks later.

The SEC also noted in its complaint that a Bloomberg News article, published in June 2020, stated that Mr Milton had “exaggerated” the capabilities of the truck.

Yet Nikola went public in June 2020 as part of a $ 700 million merger with a SPAC called VectorIQ, which was founded by Steve Girsky, a former General Motors executive and board member who has also worked at Morgan Stanley. Mr. Girsky put Mr. Milton and Nikola in touch with GM’s chief executive, Mary T. Barra, and the two companies agreed to work together on heavy trucks and vans; this agreement was drastically reduced in November.

Some untested start-ups have chosen to merge with SAVS because it is generally faster, requires less disclosure, and attracts less attention from investors and regulators than a traditional IPO. Nikola, for example, managed to go public just five years after it was created by Mr. Milton.

“In carrying out his fraudulent scheme, Milton exploited features of the SPAC structure,” Audrey Strauss, the American lawyer in Manhattan, said Thursday.

Federal prosecutors argue that retail investors have been hit by the stock’s steep decline, which began last summer, but not the company’s early investors, including Mr Milton. Nikola’s shares fell about 15% on Thursday, to around $ 12, from more than $ 65 in the middle of last year, a point at which the company had a higher valuation than Ford Motor.

The SEC complaint stated that Mr. Milton owned about 25% of Nikola’s shares after the PSPC deal and “ultimately reaped tens of millions of dollars in personal benefits as a result of his misconduct.” Securities regulators noted that Mr Milton was “engaged in a relentless public relations blitz targeting a class of investors he called ‘Robinhood investors'” – a reference to the popular firm of retail brokerage, which just raised $ 2.1 billion in its initial public offering.

Mr Milton’s legal team said in a statement that the government was seeking to “criminalize lawful business conduct”. The team added: “Mr Milton was wrongly charged following a flawed and incomplete investigation in which the government ignored critical evidence and failed to interview important witnesses.

Mr Milton was taken into custody in Manhattan Thursday morning and released on $ 100 million bail co-signed by two other people and secured by two properties worth $ 40 million.

Nikola said in a statement that Mr Milton had not been involved with the company since his resignation in September. “The actions of the government today are against Mr. Milton individually, not against the company,” the company said. “Nikola has cooperated with the government throughout its investigation.”

Authorities have not charged others with wrongdoing, including other executives, or the company itself. The SEC complaint appeared to justify its sole focus on Mr Milton by noting that even after he became executive chairman of Nikola following the merger with VectorIQ, he had firm control over the company and remained its primary spokesperson. and gave orders to others. The complaint called it a hands-on framework who “delved into the details of Nikola’s technology and product development process.”

Mr. Milton, who dropped out of high school and college, founded Nikola with the goal of becoming the Tesla of trucking. Like Elon Musk, the CEO of Tesla, he cultivated a reputation as a charismatic showman with a grand vision to revolutionize an industry. “We are going to have complete control over trucking in America,” he said. told Automotive World last year.

Mr. Milton even named his business after the inventor whose last name is used by Mr. Musk’s business, Nikola Tesla.

Attracted by the prospect of finding the next Tesla, investors large and small have invested in start-ups like Nikola in recent years. They came to believe that the world would quickly shift from fossil-fueled cars and trucks to electric and hydrogen-powered vehicles, and that start-ups, not established automakers like GM and Daimler, would lead the way. But unlike Tesla, which has produced and sold hundreds of thousands of electric vehicles over several years, many of the new entrants have struggled to make even a few thousand.

The SEC has warned investors from this year of the dangers of SPACs and the companies they acquire, particularly that people should not be lulled into overly optimistic claims. A handful of companies that have completed mergers have disclosed investigations by the SEC, federal prosecutors, or both.

Stanford Law School Securities Clearinghouse found that at least 30 companies which was made public by a merger with a SPAC had been sued by shareholders since 2019.

Erik Gordon, professor of business and law at the University of Michigan, said authorities “are sending a message that they believe PSPC is fertile ground for more serious things than just sloppy disclosure.” He added: “They think this is fertile ground for fraud and misrepresentation.”

Just two weeks ago, the SEC reached a settlement with several parties involved in the planned merger of Momentus, a company that said it has developed unique propulsion technology, and Stable Road Acquisition, a SPAC. Regulators said investors had been misled into believing the propulsion system had been successfully tested in space when it had in fact failed.

Federal prosecutors and securities regulators are also investigating Lordstown Motors, a company that hopes to manufacture electric pickup trucks and which merged with a PSPC last year.

Ohio-based Lordstown said he had collected some much needed money this week, but it has not yet started commercial production. Federal officials are investigating whether the company and its founder Steve Burns, who resigned as chief executive in June, have exaggerated claims about customer interest in its truck, which is intended for use by businesses such as contractors and utilities.

Federal prosecutors are also investigating Lordstown’s merger with DiamondPeak, a SPAC set up by David Hamamoto, a former partner of Goldman Sachs and a Wall Street real estate investor.

But PSPC supporters have said the charges against Mr Milton and other investigations should not be used to tarnish the reputation of these investment vehicles, which some people on Wall Street say are innovative. Douglas Ellenoff, a New York attorney whose firm specializes in representing the founder of PSPC, said some regulators had “issued statements that stigmatize the industry as a whole.”

Julie creswell and Neal E. Boudette contributed reports.

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Newsrust - US Top News: Nikola founder Trevor Milton charged with securities fraud
Nikola founder Trevor Milton charged with securities fraud
Newsrust - US Top News
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