Nikola founder Milton faces New York jury in his toughest sales job

Trevor Milton sold investors on the idea that his company was building the truck of the future. Now he will have to convince a jury that his alleged lies were unimportant.

Two years after he abruptly resigned from the board of directors of Nikola Corp. — the company he started — Milton is to stand trial in New York for securities fraud and wire fraud, which carries a maximum prison sentence of 25 years if convicted on the most serious charge.

Milton, 40, who founded Nikola in 2014, grew the startup into a company that as of June 2020 was valued at $34 billion, more than Ford Motor Co. at one point. The meteoric rise – despite no revenue at the time – was buoyed by investors at the height of the SPAC craze in search of the next Tesla Inc.

“The Milton lawsuit involves the application of a traditional theory of securities and wire fraud – alleging that the defendant made false representations to the investing public to induce investment – ​​to a new factual context: a transaction of -SPAC,” said Edward Imperatore, an attorney at Morrison Foerster and a former federal prosecutor in charge of securities fraud in New York.

Along with meme stocks and cryptocurrencies, SPACs were a feature of the stimulus-fueled pandemic market that crashed in 2022 as the Federal Reserve rapidly tightens monetary policy to calm soaring inflation. Growing scrutiny from US regulators has also deflated the blank check mania.

US prosecutors plan to argue that the Utah man enticed retail investors to buy Nikola shares by making false claims about the company’s products and capabilities. Milton’s attorneys will likely focus his defense on the advice he relied on from attorneys and company executives, saying that’s what determined what he told shareholders and that he had no intention of defrauding anyone.

“They shared responsibility with Mr. Milton for the accuracy of investor communications,” Milton’s attorney Kenneth Caruso said at a pretrial conference last week.

U.S. District Judge Edgardo Ramos last week denied Milton’s request to use in the trial advice that general counsel for Nikola Britton Worthen gave to other employees, which was intended to bolster his defense. But he will be able to use communications between himself and Worthen to refute prosecutors’ claims that he made public statements he knew to be false.

Milton’s lawyers pointed to evidence to support this argument, including a series of emails between Nikola executives and the founder about a podcast in which he allegedly misled investors – which they say show that his statements were approved by the company’s legal team.

Phoenix-based Nikola kicked off the SPAC trend among electric vehicle makers in June 2020, three months before Milton stepped down as chairman, by pairing up with blank check acquisition vehicle VectoIQ.

Milton’s resignation followed a report by short seller Hindenburg Research that claimed Nikola misled investors by showing fully functional non-functional products and staging misleading videos. Shares of Nikola fell on the report, which also spurred investigations by the US Department of Justice and the Securities and Exchange Commission. Shares of Nikola closed at $5.42 on Friday, valuing the company at $2.3 billion.

Milton called the report a “success,” and Nikola pushed back against Hindenburg’s claims that he overestimated the capabilities of some of his early test trucks, saying the report underestimated its ability to produce hydrogen. for its fuel cell trucks. Milton resigned saying “the focus should be on the business”.

While prosecutors can convince jurors that Milton lied to shareholders, to show he committed securities fraud, they will also have to prove that the misrepresentations were material to a reasonable investor or essential to his decision to invest. .

“It is insufficient for the prosecution to show that statements made by Milton were false,” Imperatore said. “Instead, the prosecution bears the burden of also proving that Milton’s conduct was voluntary, in other words, that Milton was aware of the general wrongfulness of his conduct. The prosecution must also prove that the Milton’s statements were important to a reasonable investor in making investment decisions.

Nikola sees himself as a clean-energy heavy-duty vehicle leader in a field with high potential for zero-emission trucks that includes other aspirants such as Tesla Inc. and incumbents like Volvo AB. The company built 50 battery-electric tractor-trailers in the second quarter, delivering 48 to dealers and missing its own forecast.

The trial before Ramos began on Monday with lawyers spending most of the day choosing a jury. The first arguments are scheduled for Tuesday. The trial is expected to last four to five weeks and is expected to feature expert testimony from both sides as well as Nikola employees, including engineers who worked on prototypes and company shareholders. At least two jurors were excused from the pool on Monday after saying they owned shares in Nikola.

Milton’s relationship with the company he founded has been strained since he stepped down. They fought over whether the documents were privileged and Milton – Nikola’s largest shareholder, with more than 12% of the shares – opposed a move the company made this year to issue new shares. The measure was approved by the shareholders.

Nikola began making payments on a $125 million civil settlement with the Securities and Exchange Commission in February. The company said it will seek reimbursement from Milton for those costs, even if it continues to cover its legal fees.

The case is US v Milton, 21-cr-478, US District Court, Southern District of New York (Manhattan.)

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