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Nikola founder Trevor Milton is on trial on fraud charges

by SuperiorInvest

CEO and founder of US Nikola, Trevor Milton speaks during the presentation of its new fully electric and hydrogen fuel cell trucks in partnership with CNH Industrial at an event in Turin, Italy on December 2, 2019.

Massimo Pinca | Reuters

Founder of the manufacturer of electric semi-trailers Nikola Motor is on trial on fraud charges related to the company’s technology and product statements, statements that federal prosecutors say are exaggerated and misleading.

The U.S. Attorney’s Office in Manhattan alleged that Trevor Milton, who founded Nikola in 2014, lied about “nearly every aspect of the business” during his time as the company’s chairman and CEO. The lies were intended to boost sales of the startup’s stock, prosecutors allege in an indictment released in 2021 and earlier this year. Milton denied the allegations.

“He lied to trick innocent investors into buying stock in his company,” Assistant U.S. Attorney Nicolas Roos said in an opening statement in U.S. District Court in New York on Tuesday. “He became a billionaire virtually overnight on the backs of those innocent investors who were taken in by his lies.”

The trial began with jury selection on Monday and began on Tuesday. Prosecutors told potential jurors the trial would likely last about five weeks.

The trial completes the stunning rise and fall of Nicholas under Milton.

The company’s stock price briefly jumped to more than $90 per share in June 2020, days after it went public through a merger with a special purpose acquisition company (SPAC). The increase in shares made Nikola – a company that did not yet have revenues at the time – more valuable than Ford Motor.

But its shares plummeted after Milton was forced out of the company in September that year allegations of fraud by short-seller Hindenburg Research. Both the Securities and Exchange Commission and the US Department of Justice opened investigations following Milton’s departure; was charged with three counts of fraud by a grand jury in July 2021. Plaintiffs added a fourth count in June.

Nikola shares closed at $5.03 per piece on Tuesday.

Milton faces two counts of securities fraud and two counts of wire fraud, all related to statements he made about Nikola’s business while he was the company’s chairman and CEO. If convicted, he could spend up to 25 years in federal prison.

Milton’s attorney, Marc Mukasey, said Tuesday that Milton was trying to convey a vision for the future of trucking, not mislead investors. Mukasey indicated that the defense plans to argue that other Nikola executives, including the company’s general counsel, signed Milton’s statement.

Nikola herself is not 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 and $125 million fine. Milton still owns shares in Nikola, but the company has otherwise cut ties with its founder.

Here is what Milton is accused of:

The plaintiffs allege that Milton made “false and misleading statements regarding Nikola’s product development and technology” as part of a “scheme” to induce retail investors to buy Nikola’s stock. Plaintiffs allege:

  • Milton said the company’s first prototype trailer, 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 driving the truck – which could not drive itself – down a hill.
  • Separately, Milton claimed that after years of work, Nikola designed and built an electric pickup called the Badger all by himself. But prosecutors say Badger was little more than “concept sketches and visualizations” at the time of Milton’s first statements.
  • While the company eventually showed the Badger prototype, the show car was actually built by third-party suppliers and based on a truck from a major automaker.
  • Milton also told investors that Nikola produces hydrogen gas — needed to refuel its fuel-cell trucks — at a reduced cost; that Nikola developed its own batteries for electric vehicles; and that Nikola had firm orders representing “billions in revenue” for its electric trucks. All of these statements were false, according to prosecutors.

Milton is also accused of making similar false statements seller of the ranch he bought in 2020in an attempt to get the seller to accept the Nikola shares 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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