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Securities fraud trial begins for former Nikola CEO

Nikola founder and former CEO Trevor Milton stood trial in New York federal court on Tuesday, arguing a good faith defense against allegations he became a billionaire by duping investors in the zero emission truck startup.

MANHATTAN (CN) — The criminal fraud trial of the billionaire founder of electric truck maker Nikola kicked off Tuesday in New York City.

“This is Trevor Milton and he committed fraud,” Assistant U.S. Attorney Nicolas Roos told jurors at the Thurgood Marshall United States Courthouse on Tuesday morning.

Milton, the founder of Nikola Corp., was indicted in the Southern District of New York in July 2021 on two counts of securities fraud and two counts of wire fraud, which alleged he stoked an investor frenzy for his startup company with bogus claims about its ability to produce trucks that run on electricity or hydrogen fuel cells.

The 40-year-old faces a maximum sentence of 25 years in prison if convicted of the most serious count.

“He repeatedly lied to investors about his company and he made a billion dollars by doing so,” Roos said during the prosecution’s 21-minute opening summation argument. “He said the trucks worked when they didn’t, he said they were making fuel when they weren’t. He said he had secured millions of dollars in contracts when they hadn’t.”

Nikola shares reached a price of close to $66 when it went public in June of 2020, briefly giving the company a market valuation that exceeded some major, established automakers. The stock now trades at under $5.50 per share.

The company’s stock price later crashed and many Nikola investors suffered heavy losses in 2020 after reports emerged questioning Milton’s rosy claims about the company’s ability to produce cutting-edge vehicles.

New York prosecutors brought their 2021 indictment 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 Nikola prototype of a semi-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.

Prosecutors told jurors Tuesday that in reality, the prototype was not operational and had to be towed up a hill, then rolled down for the commercial.  “He did it to make his company seem more successful than it was,” Roos said. “He lied to dupe innocent investors into buying his company’s stock. Stock prices go up, all so he could profit big time.”

“On the backs of the innocent investors taken by his lies, he became a billionaire virtually overnight,” Roos told jurors as the trial opened.

In the wake of the Hindenburg Research report, Milton voluntarily stepped down as executive chairman of Nikola and a member of its board in September 2020.

With their first witness on the stand, prosecutors showed jurors the promotional video, which included Milton telling investors: "You're going to see that this a real truck, this is not a pusher."

The witness, Paul Lackey, testified the truck was not operational and, indeed, needed to be pushed.

Milton, who founded Nikola in 2015 pleaded not guilty, and has been free on $100 million bail since his July 2021 arraignment.

When it was their turn, his defense lawyers called the government’s case “a grotesque distortion” of the truth.

The defense team argued that Milton had a good faith belief that he was being truthful and accurate when he made public statements about Nikola, and he had no intention of deceiving anyone about the company’s trucks or technology.

“The truth is that all of the facts were fully and accurately disclosed to anyone that wanted to invest in Nikola,” Marc Mukasey said during the defense’s 28-minute opening. “And the people who bought Nikola stock got exactly what they bargained for.”

Mukasey rebutted prosecutors’ reliance on the video that showed a truck rolling downhill to give the impression it was cruising on a highway, telling jurors that the footage was a promotional video that was made “way before Nikola went public,” and by the time public investors could buy Nikola stock, the company did have a working prototype. “As far as I know, it’s not a federal crime to use special effects in a car commercial,” he added.

Mukasey has also represented former President Donald Trump, accused war criminal Eddie Gallagher, and Florida Congressman Matt Gaetz.

Mukasey is joined on Milton’s defense team by his Mukasey Frenchman colleague Kenneth Caruso and Bradley Bondi of Cahill Gordon & Reindel.

Nikola paid out $125 million last year to settle a civil case against it by the Securities and Exchange Commission. The company did not admit to any wrongdoing in reaching that agreement.

The company continues to operate from a headquarters in Arizona. It has begun delivering some vehicles to customers and says it has been ramping up toward a capacity of making thousands of trucks per year.

The jury was sworn in Monday afternoon.

The case is being presided over by U.S. District Judge Edgardo Ramos, an Obama appointee.

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