Electric semitruck startup Nikola disclosed in a regulatory filing Thursday it has set aside $125 million for a potential settlement with the Securities and Exchange Commission (SEC) regarding fraud allegations raised in a short-seller report in September 2020.
Nikola first disclosed last year it had received subpoenas from the SEC and the Department of Justice regarding the fraud allegations. The SEC also subpoenaed eight Nikola officers and employees and its directors, while both the company and its founder, Trevor Milton, were issued grand jury subpoenas from the U.S. Attorney’s Office for the Southern District of New York.
The N.Y. County District Attorney’s Office also issued a grand jury subpoena to the company.
The investigations followed a report published Sept. 10, 2020, by short-seller Hindenburg Research. “We believe Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career,” the Hindenburg report states, alleging Nikola made false statements about its technology to boost its value. Milton has since resigned his post as executive chairman and was replaced by former General Motors Vice Chairman Stephen Girsky.
Nikola, along with SEC Enforcement Division staff, “have been engaged in discussions regarding a resolution of the SEC’s investigation,” the company stated. Final resolution of the matter is contingent on a vote of the SEC’s five commissioners.
The potential $125 million settlement amount “reflects our best estimate of the civil penalty at this time,” President and CEO Mark Russell told investors during a Thursday earnings call. “We expect it will be paid in installments over a two-year period. We’re looking forward to bringing this chapter to a close with this potential settlement and to focus with renewed determination on building our future.”
Russell added the company intends to seek reimbursement from Milton, “for costs and damages arising from the actions that are the subject of the government investigations.” Russell noted those are all the details he can provide at this time.
In July 2021, the Justice Department unsealed a criminal indictment, charging Milton with securities and wire fraud in connection with his scheme “to defraud investors by inducing them to purchase shares of Nikola … through false and misleading statements regarding Nikola’s product and technology development,” the Justice Department stated. “Milton made false claims regarding nearly all aspects of Nikola’s business.”
Additionally, the Justice Department stated, “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.”
The securities fraud counts carry a maximum penalty of 25 years in prison, while the wire fraud count carries a maximum penalty of 20 years in prison. Milton pleaded not guilty.
The SEC, which filed civil securities fraud charges against Milton in July, asked the U.S. District Court for the Southern District of New York to permanently bar Milton from acting as an officer or director of any company that issues securities, to disgorge all ill-gotten gains, and pay a civil penalty.
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