Founder Nikola indicted for securities fraud over alleged fake truck demo

In the Southern District of New York Federal Court, Nikola founder Trevor Milton… accused of securities fraud. The allegations allege that Milton made a series of materially false claims portraying electric vehicle company Nikola as much closer to releasing a functional product than it actually was, raising more than $500 million in investment in the process.

“Milton was not selling a version of Nikola as it was — an early stage company with a fresh idea to commercialize yet proven products and technology — but rather as a pioneering company that has already set many groundbreaking and groundbreaking milestones,” the indictment states.

Specifically, the indictment alleges that Milton used a staged video to create the false impression that his Nikola One semi-truck prototype was capable of driving under its own power, when in fact the vehicle was simply rolling downhill. In addition, Milton falsely claimed that the company produced its own hydrogen fuels at lower rates and had received “billions and billions and billions and billions” of dollars in committed truck orders, according to the indictment.

Nikola, a nominal rival to Tesla, rose to prominence in 2020 with plans for a pickup truck and tractor-trailer powered by hydrogen fuel cells. The excitement surrounding the trucks peaked in September, when General Motors announced a $2 billion deal to acquire an equity stake in the company and assist with the release of its Badger pickup truck.

The excitement was short-lived: Less than a week after the plans were announced, a report from shortseller firm Hindenburg Research accused the company of fraud. Based on conversations with an anonymous former employee, the report claimed that a widely publicized demonstration was staged to give the impression that Nikola’s truck was capable of driving 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 is consistent with this allegation. “A few weeks before the event, Nikola’s chief engineer informed Milton that the truck would not function during the unveiling event unless the event was postponed,” prosecutors say. “Milton has made the decision to proceed as planned with the knowledge that the vehicle to be unveiled would not work.”

The indictment confirms that the truck’s movement was the result of rolling from the top of a hill, and alleges that the “drag-and-roll” process was repeated three times to generate footage for the company’s commercial. Some footage was also sped up when edited, which had “the effect of making the Nikola One seem to move faster.”

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 details how non-functional the vehicle was. Prosecutors say all electrical components in the truck were powered externally (rather than by the truck’s battery), neither the fuel cell nor hydrogen storage tanks were installed, the air compressor and turbine were not commissioned, the gearboxes were not fitted , and vehicle level checks were not complete. The dashboard interface that Milton appeared to be using to start the truck was a ready-to-use tablet and was not integrated in any way into the vehicle’s systems, it is alleged.

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.

The consequences of the report were rapid and devastating. General Motors withdrew from the stock deal, and Milton stepped down as executive chairman shortly after. The company has continued its operations, but has scaled back its ambitions significantly. In February, Nikola stopped work on his planned electric ATV and motorboat, a decision that has cost the company $14 million according to regulatory filings.