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Fuel Cell Truck Startup Nikola Corp Agrees to Pay $125 Million to Settle SEC Charges of Defrauding Investors Ahead of its High-Profile IPO

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【Summary】​Hydrogen fuel cell trucking startup Nikola Corp, has settled its case with the Securities and Exchange Commission (SEC) for misleading investors about the capabilities of its hydrogen-powered trucks. The company has agreed to pay $125 million to settle the case against it. Trevor Milton, the founder and former CEO of Nikola Corp, was indicted by the SEC in July for making false claims about the company's technology and reservations ahead of its high profile IPO in June 2020.

Eric Walz    Dec 21, 2021 11:40 AM PT
Fuel Cell Truck Startup Nikola Corp Agrees to Pay $125 Million to Settle SEC Charges of Defrauding Investors Ahead of its High-Profile IPO
The Nikola TRE cabover fuel cell truck will have a range of up to 900 miles, according to the company.

Hydrogen fuel cell trucking startup Nikola Corp, has settled its case with the Securities and Exchange Commission (SEC) for misleading investors about the capabilities of its hydrogen-powered trucks. The company has agreed to pay $125 million to settle the case against it.

Trevor Milton, the founder and former CEO of Nikola Corp, was indicted by the SEC in July.

The indictment stated that from Nov 2019 to Sept 2020, Milton defrauded investors into buying Nikola shares by making bold claims about the company's technology and truck development, as well as inflating the number of reservation holders and financial picture as the startup sought an IPO.

Prosecutors in New York charged Milton with two counts of securities fraud and one count of wire fraud over his statements from Nov 2019 to Sept 2020. The prosecutors said Milton intentionallly misled investors in order to drive up Nikola's stock price and "elevate" his stature as an entrepreneur.

Although Nikola did not admit or deny the SEC's findings, the company has agreed to cooperate with ongoing litigation and investigation, the SEC said. 

Nikola "is responsible both for Milton's allegedly misleading statements and for other alleged deceptions, all of which falsely portrayed the true state of the company's business and technology," Gurbir Grewal, the SEC's enforcement director, said in a statement.

Nikola Corp was once viewed by many as having the potential to disrupt the trucking industry with its innovative hydrogen-powered and battery-electric trucks, the same way Tesla did to the auto industry when the Model S was introduced in 2012.

In June 2020, Nikola Corp went public in a high-profile reverse merger deal with special purpose acquisition company (SPAC) VectoIQ Acquisition Corp. New York-based VectoIQ focuses on startups developing technologies such as autonomous vehicles, smart mobility and electrification. 

The IPO valued Nikola Corp at roughly $20 billion after its stock price more than doubled in the days after. However Nikola's success was short-lived.

Two months later when well-known short seller Hindenburg Research published a scathing report about Nikola in Sept 2020 just after the company received a massive $2 billion equity investment commitment from U.S. automaker General Motors.

As part of GM's investment, the company agreed to supply batteries, chassis architecture, fuel cell systems and factory for Nikola's Badger pickup project, which has since been scrapped, in exchange for an 11% stake in the company and $700 million in cash.

Hindenburg said it had collected evidence to show that CEO Milton made false claims about the company's proprietary hydrogen fuel cell technology in order to form partnerships with large automakers like GM.

Hindenburg said it gathered extensive evidence, which included recorded phone calls, text messages, private emails and behind-the-scenes photographs detailing dozens of false statements by Milton surrounding the company's fuel cell technology.

As a result, Hindenburg Research said at the time it was short-selling Nikola stock and labeled the company as a "fraud", a charge which Nikola denied. 

"We have never seen this level of deception at a public company, especially of this size," the Hindenburg report warned potential investors in Sept 2020.

GM was also criticized after its $2 billion commitment in Nikola for not doing the appropriate due diligence, although the automaker said it had thoroughly vetted the company.  

Among the evidence collected by Hindenburg was leaked photos of Nikola's fuel cell components, including a power inverter, which the company said were developed entirely in-house. However the photos showed black tape hiding the interver's actual manufacturer, which was German supplier Bosch.

Nikola also said it received a flood of orders for its Nikola One and Nikola Two hydrogen-powered trucks. The company told Forbes in 2020 that it secured $14 billion in commercial truck leases from Anheuser Busch and U.S. Express, each of which is a seven-year lease worth about $1 million.

The company claimed its hydrogen-powered trucks produce up to 1,000 horsepower with 2,000 ft-lbs of torque and a range of 500 to 750 miles.  

Nikola even produced a promotional video titled "Nikola One in Motion", which showed one of its trucks seemingly cruising at highway speeds. But a former employee said that the video was staged. The employee claimed that Nikola had the truck towed to the top of a hill on a remote stretch of highway and simply filmed it coasting downhill purportedly under its own power.

Milton resigned in Sept 2020 shortly after the Hindenburg report was made public. Shares of Nikola Corp tumbled as much as 30% after Milton announced he was stepping down as CEO and leaving the company's board.

Nikola named Stephen Girsky, former vice chairman of GM and a member of its board, to replace Milton as chairman and attempt to regain investor confidence.

GM was also able to back out of its original $2 billion deal with Nikola in Nov 2020. 

GM's revised deal with Nikola includes a non-binding Memorandum of Understanding (MOU) for a global supply agreement in which the two companies will work together to integrate GM's Hydrotec fuel-cell technology into Nikola's Class 7 and Class 8 zero-emission semi-trucks for the medium- and long-haul trucking sectors. 

Nikola also plans to use GM's Ultium battery system, representing a key commercialization opportunity for the automaker to expand into the trucking industry.

Nikola shares are down nearly 41% since January. The shares were trading at $9.47 on Tuesday. Shortly after Nikola's IPO in June 2020, the shares climbed to $65.90, but have never rebounded after the abrupt resignation of CEO and founder Milton and the SEC investigation was made public. Nikola however, is soldiering on without Milton. 

In February, Nikola announced its model lineup, which includes a fuel cell truck with a driving range of 900 miles.

The company's fuel cell lineup includes a hydrogen fuel-cell electric vehicle (FCEV) variant of Nikola's TRE Cabover and the Nikola Two FCEV Sleeper, a long-haul truck designed for the North American market.

Nikola said its fuel cell Tre FCEV Cabover is targeted for distances up to 500 miles, while the long-haul sleeper version would allow for a non-stop range of up to 900 miles. The long-haul version could be available as early as 2024.

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