Trevor Milton, Nikola founder and Tesla competitor, is facing fraud charges. Here’s what you need to know.

In a promotional video, a truck was towed up a hill and then rolled to the bottom, to look like it was driving on its own. Not even the doors were working properly, said prosecutors, and they had to be taped closed so they didn’t suddenly open.

What is Nikola?

• Nikola Corp. is a direct competitor of Tesla Inc. (did the name tip you off?), which mostly make vehicles like semi-trailers and moving trucks, instead of consumer-level cars.

• Instead of just producing electric vehicles, though, Nikola’s schtick is that while it uses the same electric components as Tesla, its cars are powered by hydrogen.

• So, a strong argument for hydrogen cars is that hydrogen is a more abundant resource than the nickel it takes to make batteries for electric cars.

• The company has yet to produce any vehicles for sale, but it estimated that with its plant in Arizona running by 2023, it would be able to produce 35,000 cars at the beginning and then 50,000 trucks a year at full capacity.

What happened?

• 2020 started off well for the company after they went public via a SPAC in June that saw its stocks shoot up to US$74 per share almost immediately. But by August, the stocks fell to US$30 per share.

• A SPAC is a public company that doesn’t sell anything and has no business operations, but has just been created for the sole purpose of merging with private companies so that the private company can go public.

• The whole idea is that the private company can somewhat bypass the traditional Initial Public Offering (IPO) process, which can take years and go public quicker, accessing public funding quicker.

• In September, the company announced a partnership with General Motors Company, or just GM, where GM would take an 11% stake in Nikola, which would help Nikola with both its battery and hydrogen-powered vehicles.

• But only a couple of days later, a firm aptly named Hindenburg Research burned the whole thing to the ground by releasing a report that accused Nikola of fraud.

• Stocks fell, and Trevor Milton, the company’s founder, stepped down from his position as board chairman.

What are the allegations?

• The allegations by Hindenburg Research mostly focus on Milton and the dozens of instances where he lied in what seems to be efforts to drive up stock prices.

• The claims in the report document everything from outright lies made on stage to the fact that even though his brother’s role in the company is Director of Hydrogen Production and Infrastructure, his brother’s experience before joining Nikola “largely consisted of pouring concrete driveways and doing subcontractor work on home renovations in Hawaii.”

• “We expected to find that Nikola had hired a world-renowned scientist to lead its revolutionary hydrogen efforts. Instead, it appears Nikola has appointed Trevor Milton’s brother, Travis, as the Director of Hydrogen Production/Infrastructure,” the report wrote.

• Prosecutors say that some public events that showcased Nikola vehicles didn’t involve original vehicles at all, but instead, Frankenstein monsters made from other vehicles. The vehicles at the events also weren’t powered by hydrogen or electric batteries, but by plugs from hidden wall sockets.

• And, in a promotional video, a truck was towed up a hill and then rolled to the bottom, to look like it was driving on its own. Not even the doors were working properly, said prosecutors, and they had to be taped closed so they didn’t suddenly open.

• After the allegations were made in the Hindenburg report, it emerged that the Department of Justice (DOJ) had opened a probe into the company.

And, Milton was indicted?

• Yep, a federal grand jury charged him with three counts of fraud for lying about the business to bolster stock sales.

• Plus, the Securities and Exchange Commission (SEC) filed civil fraud charges against Milton on July 29, asking a district court to permanently bar him from acting as an officer at any publicly listed company.

• The SEC also filed charges to get rid of any gains he accumulated from the fraud, and to get him to pay a fine for it all.

• According to the indictment, “Milton’s scheme targeted individual, non-professional investors – so-called retail investors – by making false and misleading statements directly to the investing public through social media, and television, print and podcast interviews.”

What did Milton say?

• Milton and his legal team still argue that he’s innocent and that he’s been wrongfully accused because of a problematic investigation.

• According to a statement from his legal team, “Mr. Milton has been wrongfully accused following a faulty and incomplete investigation in which the government ignored critical evidence and failed to interview important witnesses.”

• The statement also says that the investigation had ulterior motives, and that “this is a new low in the government’s efforts to criminalize lawful business conduct.”

• He ultimately pled not guilty to the charges and was freed on a US$100 million bond secured against two of his Utah properties, which means that if he doesn’t show up to trial, he loses those properties and gets arrested.

What next?

• Nikola has been working hard to build a wall between it and its founder, emphasizing that the allegations and charges are against Milton and not the company.

• In a statement, it said that it has “cooperated with the government throughout the course of its inquiry,” and that it is still focused on its previously announced timelines.

• The legal situation for Milton isn’t over yet though. According to John Coffee, a securities law professor at Columbia University told CNBC that Milton’s best move would be to seek a plea deal.

• According to Coffee, the claims made by prosecutors “are not nuanced ones over which there can be a reasonable argument.”

• The fraud charges against Milton have also reinforced some of the criticisms against SPACs, whereby companies get to go straight to market without having to disclose their financials well, something they would have to do through a standard IPO process.

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