Nikola Founder Trevor Milton Charged with Fraud

• Nikola truck EV start-up founder Trevor Milton charged with two counts of securities fraud and one count of wire fraud.

• DOJ claims Milton made false claims about the company's technology and vehicles, including the Nikola One, in an effort to drive up stock value.

• GM took a $2 billion stake in Nikola nearly a year ago, but the Detroit automaker's plans to produce the Nikola Badger pickup later fell apart.

Nikola electric truck start-up founder Trevor Milton was arrested on Thursday morning after a federal grand jury indicted the executive on three counts of criminal fraud. Prosecutors allege that the 39-year-old billionaire devised a scheme to drive up the company's stock value while making false and misleading statements about the company's technology and development progress. The indictment claims that Milton targeted retail investors in an effort to encourage them to buy the stock, including those who had no prior experience in the market.

Prosecutors also allege that Milton promoted an exaggerated and false narrative about the Nikola One semi truck, which was unveiled back in 2016, which Milton claimed to be fully functional at the time. Additionally, the indictment alleges that the Nikola One prototype was, in fact, not finished at the time of the unveiling, and also did not feature gears or motors.

"Instead, for the purpose of the unveiling event, tablet computers or other computer screens were mounted into the areas where the screens for the infotainment would be, and the screens were set to display images created to have the appearance of infotainment screens, with speedometers, maps, and other information displayed," the U.S. Attorney's Office for the Southern District of New York said in a statement.

A parallel civil action was also filed by the U.S. Securities and Exchange Commission this week, which participated in the investigation along with the U.S. Attorney's Office for the Southern District of New York.

In the criminal indictment, the U.S. Attorney's Office claims that Milton that "made false claims regarding nearly all aspects of Nikola’s business" for a number of years, including those that concerned the Badger pickup. Prosecutors allege that he claimed that the Badger was made from the ground up with Nikola's technology and parts, when he knew that that wasn't true, and also that he falsely claimed that Nikola itself as a company was producing hydrogen fuel for use in vehicles. The indictment also alleges that he made false claims about battery development at Nikola, and that the company had binding orders for the trucks representing billions in revenue.

The indictment paints a timeline of the company from the early days of the start-up and the first appearance of the Nikola One semi truck, to the period of the past year.

Notably, almost a year ago short-seller Hindenburg Research published a report about the company, in which it made a number of very similar allegations about Milton and the company's vehicle projects and technology. The lengthy report titled Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America, detailed a number of alleged actions that included Nikola's technology and financial activities.

"We think Trevor Milton, through dozens of outright lies, was able to form partnerships with some of the largest legacy auto companies in the world in their desperation to catch up to Tesla’s EV leadership status," Hindenburg said in the report at the time.

But in the time prior to the release of the report, the Department of Justice says that tens of thousands of retail investors had purchased Nikola shares.

The research report was released just a couple of days after GM announced a $2 billion stake in the start-up, prompting shares of both companies' stocks to rise at the time, just as the Badger electric pickup, promised with 906 hp and 980 lb-ft of torque, was garnering publicity in the world of EVs, despite being just a computer-generated rendering. Weeks later, in November 2020, the company backed away from the Badger project entirely, after discussions with GM to produce the truck collapsed following the publishing of Hindenburg's report. It was during this time that more industry and market observers began to cast more doubt on Nikola's tech, and the chances of any of its projects from proceeding to production.

The announcement of GM's $2 billion stake in Nikola, part of a 10-year agreement along with plans to validate and produce the Badger pickups prompted some questions among industry watchers at the time. The deal was described as essentially an exchange of $2 billion in Nikola shares for GM technology and components, and was expected to eventually generate profit for GM. At the time, some industry watchers had questioned just what GM thought Nikola had in terms of EV technology that GM itself did not, and how much research it had actually done into the company.

"The value of Nikola’s stock plummeted after the fact that certain of MILTON’s statements had been false and misleading was disclosed to the market in or around September 2020," the U.S. Attorney's Office for the Southern District of New York said in a statement. "As a result, many Nikola stockholders, including the retail investors who were the target of MILTON’s scheme, suffered significant financial losses, in some cases totaling in the tens or hundreds of thousands of dollars and compromising their financial security or retirement savings."

Milton was charged with one count of wire fraud two counts of securities fraud on Thursday, turning himself in for arrest and processing. The the U.S. Attorney's Office for the Southern District of New York points out that the one count of wire fraud carries a maximum penalty of 20 years in prison, while the two counts of securities fraud carry maximum penalties of 20 and 25 years each, in general.

"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. "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."

A representative for Milton's legal team denied the charges against the company's founder.

Milton's indictment could certainly bring further scrutiny upon other EV start-ups in the near term, as well as increased scrutiny from automakers when it comes to cooperation agreements and financial stakes in start-ups. The indictment could also bring increased scrutiny upon the Special Purpose Acquisition Companies that are used by start-ups to raise capital, but which by themselves have no commercial operations. But it remains to be seen whether the indictment and subsequent prosecution of the case, along with the civil action that was also filed by the U.S. Securities and Exchange Commission this week, will temper the efforts of other start-ups to follow in Tesla's footsteps to try to replicate its success, while taking significant risks in the process and relying upon prototypes in generating publicity as well as unfinished technology , some of which was sold to buyers years prior.

"Between the name of his company and his patterns of behavior, it was extremely obvious what he was about: emulating Elon Musk's game plan, to the best of his abilities," Ed Niedermeyer, EV industry analyst and author told Autoweek.

Some increased government scrutiny in the world of EVs certainly landed upon Lordstown Motors—another EV pickup truck start-up that had attracted a high level of publicity—which at one point got Vice President Mike Pence to participate in a factory event that was broadcast on the internet. Lordstown Motors became the subject of a Justice Department investigation a few weeks ago in addition to a Securities and Exchange Commission probe that was opened earlier this year. Its CEO and CFO resigned in mid-June of this year.