By R. Jason Howard, J.D.
The defendant is alleged to have "reaped tens of millions of dollars in personal benefits."
The SEC announced charges against Nikola Corporation’s founder, former CEO, and former executive chairman on July 29, 2019, on allegations that he engaged in a fraudulent scheme to deceive retail investors, primarily through the use of social media, about the company’s products, technical advancements, and commercial prospects (SEC v. Milton, July 29, 2021).
Scheme. According to the complaint, the defendant founded Nikola in 2015 with the "primary goals of manufacturing semi-trucks that run on alternative fuels with low or zero emissions and building an alternative fuel station infrastructure to support those vehicles." Using social media to promote Nikola, the defendant was able to raise more than $1 billion in private offerings and take Nikola public through a special purpose acquisition company (SPAC).
As alleged, from November 2019, through September 2020, after Nikola began trading publicly, the defendant encouraged investors to follow him on social media to receive accurate information about the company. Instead, investors were misled and told, among other things, that Nikola’s prototype semi-truck could drive under its own power, that a prototype electric pickup truck had been completed, that Nikola had developed "game-changing" battery technology, and that the company "had obtained billions and billions and billions and billions" of dollars in truck order commitments. The complaint further alleges that through his misconduct, the defendant "reaped tens of millions of dollars in personal benefits," On revelations that the statements were false, investors suffered significant financial losses.
"Having chosen to promote Nikola through social media," the defendant was "obligated under the securities laws to communicate completely, accurately and truthfully," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "That obligation exists for all public company officials, even those whose companies have only recently entered the public markets through SPAC transactions."
Relief sought. The SEC is seeking a final judgment finding that the defendant violated federal securities laws, a permanent enjoinment from future violations, disgorgement of all ill-gotten gains with prejudgment interest, and civil penalties in addition to an officer and director prohibition and a bar from directly or indirectly participating in the issuance, purchase, offer or sale of any security, except from his own personal account as well as any further relief the court may deem necessary.
Indictment. In a parallel action, the United States Attorney’s Office for the Southern District of New York announced the unsealing of a criminal indictment on July 29, 2021, charging the defendant with securities and wire fraud in connection with his scheme. The press release notes that many of the investors lost retirement savings or funds they had borrowed to invest in Nikola. The defendant is charged with two counts of securities fraud which each carry a maximum penalty of 20 to 25 years in prison and one count of wire fraud which carries a maximum penalty of 20 years in prison.
The case is No. 1:21-cv-06445.
Attorneys: Nikolay V. Vydashenko for the SEC.
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