Nikola founder charged with securities fraud over allegedly fake truck demo
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‘Behold, the Nikola One in motion’
In Southern District of New York federal court on Thursday, Nikola founder Trevor Milton was charged with securities fraud. The charges allege that Milton made a series of materially false claims which portrayed the electric vehicle company Nikola as far closer to releasing a functional product than it actually was, and raising more than $500 million of investment in the process.
“Milton sold a version of Nikola not as it was – an early stage company with a novel idea to commercialize yet-to-be proven products and technology – but rather as a trail-blazing company that had already achieved many groundbreaking and game-changing milestones,” the indictment alleges.
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Specifically, the indictment argues Milton used a staged video to create the false impression its Nikola One semi truck prototype was capable of moving under its own power, when in fact the vehicle was simply rolling downhill. Additionally, Milton falsely claimed the company was producing its own hydrogen fuels at below-market rates and had obtained “billions and billions and billions and billions” of dollars worth of committed truck orders, according to the indictment.
A nominal rival to Tesla, Nikola rose to prominence in 2020 with plans for a pickup truck and tractor trailer cab powered by hydrogen fuel cells. Excitement around the trucks peaked that September, when General Motors announced a $2 billion deal to acquire an equity stake in the company and assist in the release of its Badger pickup truck.
The excitement was short-lived: less than a week after the plans were announced, a report from short-seller firm Hindenburg Research accused the company of fraud. Based on conversations with an anonymous former employee, the report alleged that a much-publicized demonstration had been stage-managed to give the impression that Nikola’s truck was capable of moving under its own power. Instead, the report claimed, “Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”
The indictment echoes this claim. “A few weeks before the event, Nikola’s chief engineer informed Milton that the truck would not be functioning at the unveiling event unless the event was postponed,” prosecutors allege. “Milton made the decision to proceed as scheduled with the knowledge that the vehicle to be unveiled would not be functioning.”
. . .The final version of the video was posted to Nikola’s official YouTube, Facebook, and Twitter accounts with the caption, “Behold, the Nikola One in motion.”
The indictment also gives more detail on precisely how nonfunctional the vehicle was.
> Prosecutors say all electrical components in the truck were powered externally (rather than from the truck’s battery), neither the fuel cell nor hydrogen gas storage tanks had been installed, the air compressor and turbine had not been commissioned, the gearboxes had not been assembled, and the vehicle-level controls were not complete. The dashboard interface that Milton appeared to use to start the truck was an off-the-shelf tablet and was not integrated into the vehicle’s systems in any way, the filing also alleges.
Hindenberg claimed in the report that the Securities and Exchange Commission was investigating Nikola, although the SEC declined to confirm the investigation at the time.
Fallout from the report was swift and devastating.
> General Motors backed out of the equity deal, and Milton stepped down as executive chairman shortly afterward. The company has continued operation but scaled down its ambitions significantly.
In February, Nikola halted work on its planned electric ATV and motorboat, a decision that cost the company $14 million according to regulatory filings.
Following the alarm business exit, Trevor launched an online classified ads website that sold used cars, called uPillar.com, which eventually failed. (For more on both of these early businesses, see the Appendix at the end of this report.)
Following those two early pursuits, Trevor’s initial foray into alternative energy vehicles was a company called dHybrid, Inc. . .
It Got Off to a Good Start: dHybrid Entered into Agreement with Major Trucking Company Swift to Convert Up to 800 Trucks, a Contract Valued at $16 Million
Shortly after launching dHybrid, Trevor contacted Jerry Moyes, CEO of Swift Transportation to market dHybrid’s conversion technology, according to a source familiar with the company. The team demonstrated the technology on a converted pickup truck to Moyes at Swift’s Phoenix facility.
Moyes was apparently impressed with the demo and Swift eventually signed a development agreement, paying $2 million for a 9% stake in dHybrid, as well as extending a $322,000 loan to the company.
. . .
In another dHybrid investor presentation we reviewed, one slide cites the Swift contract as being $300 million, triggered when EPA certification is achieved:
But once again, per the Swift lawsuit, we see clearly that the contract value was only $16 million. [Pg. 10]
In June of this year, Bloomberg published a piece highlighting that, contrary to Trevor’s claims, the truck was not complete and was missing components.
In response, Trevor blasted the reporter on Twitter and immediately vowed to sue, claiming that everyone knew the truck wasn’t operable and that the parts were sitting right on the table in front of the audience the whole time:
Bloomberg Was Right. The Reveal Was a Farce. More Evidence Corroborates the Bloomberg Piece and Furthers Their Allegations
We have behind-the-scenes photos and other evidence showing just how incomplete the Nikola One was at the time of the 2016 reveal. . .
As time passed and the hype from the December 2016 show faded with no major updates, skepticism began to mount about the Nikola One.
As shown above, no plans were in place to finish development of the Nikola One. Bosch, which had partnered with Nikola following the show, was still quite some time away from delivering working prototypes of Nikola’s next development.
To remedy this ‘hype gap’, Nikola teased a tweet on October 6th 2017 about an upcoming video:
The first video, which was finally released in January, was for major auto parts manufacturer Phillips, and showed a short clip of the Nikola One easing to a stop sign.
But the main event was another video, entitled “Nikola One in Motion” released the next day on Nikola’s corporate YouTube account and promoted on social media, garnering 230,000 views on Facebook alone. This video appeared to show the truck driving on a level road at a high rate of speed.
The video generated a tremendous amount of buzz and excitement about the pre-production units to be released the following year (which never happened).
But according to a former employee who spoke with Nikola Chief Engineer Kevin Lynk, the video was simply the result of Nikola towing the truck to the top of a hill and rolling it down.
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