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Founder of electric carmaker Nikola secures $100 million bail on fraud charges

A federal indictment says Trevor Milton targeted novice retail investors and misled the public about “nearly all aspects of the business” positioned as a competitor to Tesla.

MANHATTAN (CN) — The billionaire founder of Nikola Corp. pleaded not guilty Thursday afternoon to charges that he deceived investors about the electric and hydrogen-powered truck startup of which he was once executive chair.

“As alleged, Trevor Milton brazenly and repeatedly used social media, and appearances and interviews on television, podcasts, and in print, to make false and misleading claims about the status of Nikola’s trucks and technology,” Manhattan U.S. Attorney Audrey Strauss said at press conference ahead of the court hearing. “But today’s criminal charges against Milton are where the rubber meets the road, and he now will be held accountable for his allegedly false and misleading statements to investors.”

The government’s 48-page grand jury indictment unsealed this morning charges Trevor Milton with two counts of securities fraud and one count of wire fraud. Milton, of Oakley, Utah, resigned as chair of Nikola in September as the allegations came to the surface.

Prosecutors allege that Milton deployed a tangled securities fraud scheme designed to inflate the company’s stock for personal gain by lying about “nearly all aspects of the business,” including misrepresentations of Nikola’s products, technology and future sales prospects.

U.S. Magistrate Judge Sarah Netburn granted the 39-year-old a $100 million bail, which he secured through two Utah properties, one of which was appraised at $36 million, a prosecutor noted. As part of the bail, Netburn is forbidden from contacting any investors with whom he does not have an independent relationship.

The indictment accuses Milton of using his social media presence and frequent appearances on television and podcasts to target amateur retail investors about Nikola’s deal to go public via a special-purpose acquisition company.

“Among the retail investors who ultimately invested in Nikola were investors who had no prior experience in the stock market and had begun trading during the Covid-19 pandemic to replace or supplement lost income or to occupy their time while in lockdown,” the indictment states.

The indictment comes nearly a year after Hindenburg Research issued a report that said 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 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.

Milton's video of the Nikola One electric heavy-duty truck is discussed in the indictment as well. Prosecutors say the vehicle “was never completed and has never been operable,” and had be towed to the top of the hill and rolled down to lend the battery-powered prototype the appearance of drivability.

“As a result, some of the retail investors that Miltons’s fraudulent scheme targeted suffered tens and even hundreds of thousands of dollars in losses, including, in certain cases, the loss of their retirement savings or funds that they had borrowed to invest in Nikola,” the indictment states.

Milton denied the fraud allegations last year. 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. Milton's indictment Thursday Nikola shares down 7% before the opening bell. It had fallen 10% by the time of the 2 p.m. arraignment.

The case has been assigned to Obama-appointed U.S. District Judge Edgardo Ramos. Representatives for Nikola reiterated on Thursday that Milton has not been involved in the Nikola’s operations or communications since his resignation.

“Today’s government actions are against Mr. Milton individually, and not against the company," it said in a statement. "Nikola has cooperated with the government throughout the course of its inquiry. We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities.”

The company said it has “cooperated with the government throughout the course of its inquiry.”

Dressed in a suit and purple tie, Milton left court without responding to reporters' questions. He later issued a statement through a spokesperson that called the case "a new low in the government’s efforts to criminalize lawful business conduct.”

“Trevor Milton is an entrepreneur who had a long-term vision of helping the environment by cutting carbon emissions in the trucking industry," the statement continues. "Mr. Milton has been wrongfully accused following a faulty and incomplete investigation in which the government ignored critical evidence and failed to interview important witnesses."

At the hearing, defense attorney Marc Mukasey noted his team would be revising financial information in the court record, including a statement that some Milton bank accounts contained $50 million.

Mukasey said it was "a lot less than that as we understand it.”

Among other allegations about the Nikola One prototype video, the indictment notes that its door was constructed using minivan parts and had to be taped up during the shoot to prevent it from falling off.

The indictment also alleges Milton falsely represented that Nikola had engineered and built an electric- and hydrogen-powered pickup truck known as “the Badger” from the “ground up” using Nikola’s parts and technology, when he knew that was not true.

Milton also made false public statements claiming Nikola was producing hydrogen at a reduced cost, when he knew that in fact no hydrogen was being produced at all by Nikola at any cost, the indictment charges.

The Securities and Exchange Commission also filed a parallel two-count civil complaint against Milton in the Southern District of New York on Thursday.

Follow Josh Russell on Twitter

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