MANHATTAN (CN) — A startup company that makes hydrogen-powered trucks has settled charges that it misled investors about its products, technical advancements and commercial prospects.
In a deal announced Tuesday by the Securities and Exchange Commission, Nikola Corp. will pay $125 million to resolve charges that it violated antifraud and disclosure provisions of federal securities laws, in a scheme that cost investors tens or even hundreds of thousands of dollars in losses.
The SEC unsealed its indictment earlier this year charging company founder Trevor Milton, who is Nikola's former CEO and executive chairman, with two counts of securities fraud and one count of wire fraud.
As laid out in the 48-page grand jury indictment, Milton used his Twitter and Instagram accounts, as well as appearances on television and podcasts, to target amateur retail investors about Nikola’s deal to go public via a special-purpose acquisition company.
The “media blitz,” in Milton’s words, was aimed at inflating Nikola’s stock price, and keeping it high — all before the company had produced a single commercial product, according to the SEC’s order. Now awaiting trial on a formidable $100 million bail, Milton touted inaccurate details about technological advancements, in-house production capabilities, hydrogen production, truck reservations and orders, and financial outlook.
Securities officials say Nikola also misled investors about the time it took to refuel its prototype vehicles; the status of the hydrogen station at its headquarters; electricity cost and sources for its planned hydrogen production; and the economic risks linked to a potential partnership with an unnamed leading auto manufacturer.
The July 2021 indictment came nearly a year after Hindenburg Research reported that Nikola’s success was “an intricate fraud.”
Documenting the "ocean of lies” supporting that narrative, the report pointed to a video Milton released that showed a the Nikola One electric heavy-duty truck rolling downhill to give the impression it was cruising on a highway. On the side of a vehicle powered by natural gas, the video showed the words “hydrogen electric” stenciled on.
The vehicle, in fact, “was never completed and has never been operable,” prosecutors said. It had to be towed to the top of the hill, and its door, made using minivan parts, was taped during the photo shoot to prevent it from falling off.
Two days after Niokla’s stock reached a high of $34.19 per share on September 18, 2020, the Phoenix, Arizona-based company announced Milton's resignation as executive chairman of Nikola’s board of directors.
By the end of that week, Nikola’s stock plummeted 43% to close at around $19.46 per share on September 25, 2020.
“Nikola Corporation is responsible both for Milton’s allegedly misleading statements and for other alleged deceptions, all of which falsely portrayed the true state of the company’s business and technology,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “This misconduct — and the harm it inflicted on retail investors — merits the strong remedies today’s settlement provides.”
Nikola neither admitted nor denied the SEC’s findings while agreeing to the penalty. The order also creates a Fair Fund to return the proceeds from the penalty to investors duped by the misleading information.
The company said Tuesday that it was pleased to have resolved the fraud allegations and “remains focused on meeting previously stated key milestones.”
“We will continue to execute on our strategy and vision to deliver on our business plan, including delivering trucks to customers, expanding our manufacturing facilities and our sales and service network, and building out our hydrogen infrastructure ecosystem including hydrogen production, distribution and dispensing stations,” it said in a statement.
The case in the Southern District of New York went before U.S. District Judge Edgardo Ramos, an Obama appointee.
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