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The U.S. Attorney’s Office in the Southern District of New York brought criminal charges last July against former Nikola CEO Trevor Milton. A year later, Nikola has settled with the SEC, agreeing to pay $125 million in penalties – and now prosecutors and the SEC are bringing new and separate civil charges against its former CEO. Prosecutors are asking the SEC to halt civil proceedings against Milton until the criminal case is resolved.

The new charges involve Nikola stock so we thought we would take another look at the original case which remains one of the largest instances of an ESG fraud settlement in US history. Institutional investors lost millions of dollars, but with shares now trading at less than 10% of its June 2020 value, some retail Nikola investors lost hundreds of thousands of dollars in savings and retirement. Here’s a breakdown of how Milton successfully defrauded the retail investor market and the broader themes behind this case.

Case Breakdown

With its variety of claims, certifications, metrics, and jargon, the world of ESG can be complex and difficult to navigate. Spotting fraud is sometimes especially difficult. However, in this case the fraud perpetrated by Milton and Nikola was flagrant and borders on comical. Nikola, an electric vehicle manufacturer, was poised to be the first company to bring electric semi-trucks to market. This promise of electric semi and pickup trucks excited investors and ballooned Nikola’s stock price to $60 per share in June 2020. Unfortunately, Milton pushed fraudulent claims and narratives which were the basis of the original case against him. The case centers around three products Milton claimed Nikola was bringing to market:

  • Nikola One, a zero-emissions semi-truck that promised to change the shipping industry;
  • The Badger, an electric pickup designed to stand tow to tow with Ford’s F-150; and
  • A plan to produce hydrogen on-site at fueling stations around the country.

Nikola One was the crown jewel of Nikola. The zero-emissions semi came onto the scene in December of 2016 when Milton unveiled a prototype on a live internet broadcast. The concept of a zero-emissions semi was not only intriguing to investors but Milton announced that the prototype “fully functions and works, which is really incredible.” The only problem was – according to the complaint – that it didn’t fully function or work, nor was the truck even complete as it was still missing gears, motors, and the control system. Nonetheless, the promise of an electric semi was enough to generate significant interest. As time passed and the product came no closer to coming to market, Milton was facing pressure to show progress on his “fully functional” prototype. In January 2018, Milton and Nikola both posted a video to their respective Twitter accounts which depicted the Nikola One taking to the road, seemingly running smoothly in a real environment. However, the video was a fabrication: the Nikola One prototype was towed to the top of a hill, the brakes were released, and gravity did the work. The footage was shot at such an angle to create the illusion of the truck moving across a level road. Despite using the same special effects that allowed Adam West to walk “up” a wall in the 1966 Batman film, the video generated renewed interest in Nikola.

Nikola One was front and center as Nikola’s main selling point, but there was also the promise of the Badger and low-cost hydrogen production and refueling stations. The Badger was to be an electric truck with performance comparable to Ford’s F-150. Milton claimed that the entire truck was made from the “ground up” by Nikola using in-house engineers and designs. According to investigators, Nikola subscribed to the “if you can’t beat em, join ’em” mindset, and instead of building their prototype from the “ground up” Nikola bought several Ford F-150s and used their chassis and bodies as the basis for their prototype. Moreover, the prototypes lacked parts including airbags and air conditioning and never underwent safety testing.

As for hydrogen production, Nikola claimed they would set up hydrogen stations and produce hydrogen on-site allowing them to produce and sell hydrogen well below the market price of $16 a kilogram. Milton stated that they could produce hydrogen for as low as $4 a kilogram. However, Nikola never produced any hydrogen at any price, and in fact, purchased the hydrogen they used from a supplier at $16 a kilogram.

How Milton Sold Nikola to Investors

You may be wondering how Nikola managed to defraud thousands of investors relying solely on lies and deception. The answer to that is two-fold:

  • Milton needed to get around regulations, and
  • he needed to get investors on board.

Milton abused market rules by taking his company public through a Special Purpose Acquisition Company or “SPAC” rather than a traditional IPO. My colleagues at have written extensively about the myriad of problems with SPACs. IPOs have specific rules governing when companies can make public statements in the process of bringing their company public. By merging with a SPAC to go public, Milton was able to avoid these rules (although that may change). This is the same move used by infamous fraudster Barry Minkow, who used a merger with a Utah mineral company to bring his fraudulent carpet cleaning business “ZZZZ Best” public in December 1986.

Milton needed to build a base of investors and he knew that institutional investors would want information that he could not provide. Luckily for Milton, the global COVID pandemic led to a massive influx of retail investors. Retail investors using platforms like Robinhood were hoping to make up lost wages from COVID lockdowns or simply looking for productive use of the new time on their hands. This is where Milton found his mark. By taking advantage of a less sophisticated group of investors Milton was able to generate hype around Nikola. That hype turned into an influx of cash at least for a time. Nikola’s misdeeds were brought to light when the forensic financial research firm “Hindenburg Research” published a report outlining the fraud. As criminal charges are pending awaiting trial, Milton maintains that he is innocent.

What this Means

It is easy to look at this case through a business lens and wonder how investors feel prey to this. The actions of Nikola seem incredulous in hindsight but to many in the retail investor market targeted by Milton, there was no way to see this coming. Even sophisticated investors didn’t know where the blind spots were or what red flags to look for. Yet the risks to Nikola and Milton personally were the same regardless of what type of investor was intended to be defrauded. Also, while the original case has been settled, it still follows Milton. members have access to resources to help companies increase internal fraud awareness and implement controls to prevent baseless claims from being made in public, risking lawsuits against the company and individuals. These resources include our podcast on Fraud Detection in ESG or our checklists on selecting ESG Auditors and Advisors and ESG Leadership Qualifications.

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The Editor

Zachary Barlow is a licensed attorney. He earned his JD from the University of Mississippi and has a bachelor’s in Public Policy Leadership. He practiced law at a mid-size firm and handled a wide variety of cases. During this time he assisted in overseeing compliance of a public entity and litigated contract disputes, gaining experience both in and outside of the courtroom. Zachary currently assists the editorial team by providing research and creating content on a spectrum of ESG… View Profile