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Trevor Milton of Nikola Begins Trial in Fraud Case

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The founding father of Nikola Motor, a maker of electrical trucks, is standing trial on fraud charges in a case seen as a cautionary tale in regards to the hazards of investing in corporations that will not be yet generating any sales or delivering any products.

The defendant, Trevor Milton, faces federal charges of fraud and securities fraud stemming from accusations that he exaggerated the corporate’s technology, resulting in crushing losses for individuals who bought Nikola stock before it collapsed.

The trial, expected to last 4 or five weeks after getting underway with jury selection on Monday, is being held at U.S. District Court in Manhattan. Mr. Milton has pleaded not guilty. He’s being represented by Marc Mukasey, who has represented the Trump Organization and Edward Gallagher, a member of the Navy SEALs who was accused of war crimes in Iraq.

In 2020, Nikola was briefly price more on the stock market than Ford Motor amid investor fervor in regards to the upstart’s potential to grow to be the Tesla of the trucking industry.

Nikola’s shares fell sharply after reports that Mr. Milton had made false claims about Nikola’s technology, including producing a video during which a truck was rolled down an incline to make it look as if the corporate had a working prototype.

Mr. Milton soon resigned, and Nikola continues to operate. It has begun producing a battery-powered truck referred to as the Tre at a factory in Arizona and has delivered about 50 to dealers, a spokeswoman said. Nikola reported a net lack of $173 million for the three months through June on sales of $18 million.

Last yr, Nikola agreed to pay a civil penalty of $125 million to settle a fraud investigation by the Securities and Exchange Commission. Nikola didn’t admit wrongdoing as a part of the settlement.

Nikola shares traded recently around $5.40, down from a record close in June 2020 of virtually $66.

The case can be seen for instance of the risks of investing in special purpose acquisition corporations, or SPACs, corporations that list on the stock exchange before they’ve any assets. Nikola went public in 2020 by merging with a SPAC called VectoIQ Acquisition Corporation, avoiding a number of the regulatory scrutiny often applied to initial public offerings.

Once the trend on Wall Street, SPACs have lost much of their shine after many performed poorly.

With Tesla an exception, many electric vehicle makers have had trouble ramping up production or winning significant market share. Their possibilities of success are diminishing as traditional automotive and truck makers belatedly introduce battery-powered products.

In Nikola’s case, federal prosecutors contend, Mr. Milton promoted the stock in interviews and on social media in a deliberate try to attract less sophisticated, small-scale investors.

We “have to make sure that we’re getting retail investors on our side,” he said in an email to a Nikola board member a day before the corporate announced that it could merge with VectoIQ, based on the indictment against him.

Mr. Milton made quite a few false statements, based on the indictment, claiming that Nikola had a totally functioning truck in 2016 when the vehicle lacked gears or a motor. The indictment also says Nikola posted videos online that appeared to point out a prototype traveling along a road when it lacked power and was coasting down a hill.

As well as, based on the indictment, Mr. Milton claimed in 2020 that Nikola was developing a pickup, the Badger, “from the bottom up” using its own technology. In reality, the federal government says, the technology got here from third parties and a prototype Badger was built using parts from Ford F-150 pickups.

Mr. Milton later claimed in a podcast interview that the Badger would vanquish the F-150, prosecutors say.

At one point, he said on Twitter that the Badger would have a drinking fountain fed by waste water from its hydrogen fuel cell. But Mr. Milton had not discussed this feature together with his engineers and later searched the web to find out whether it was feasible, based on the indictment. (It apparently was not.)

Along with constructing trucks, Nikola planned to construct a network of hydrogen fueling stations for trucks powered by fuel cells. Mr. Milton claimed repeatedly that Nikola had already constructed stations that would generate their very own hydrogen cheaply, the indictment says.

“Nikola had never obtained a permit for, let alone constructed, a hydrogen production station, nor had it produced any hydrogen,” the indictment says.

Small investors bore the brunt of the losses when Nikola shares plunged greater than 40 percent in September 2020 after Mr. Milton’s resignation, based on the indictment. Some institutional investors, who “had more complete access to details about Nikola’s products and technology,” got out earlier, prosecutors say. These investors “were in a position to sell their stock for a major profit.”

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