Nikola saw the beginning of the end when the short-selling firm Hindenburg Research challenged a story told by Nikola. Fifteen months later, the electric truck developer has agreed to a settlement amounting to the tune of $125 million for the civil fraud charges brought against it by the Securities and Exchange Commission. Despite its refusal to admit to the charges, the company will pay the fine to compensate defrauded investors.
Nikola (ticker: NKLA) stock rose in premarket trading but faced a slump of about 0.5% to $9.20 a share by mid-morning. The S&P 500 and Dow Jones Industrial Average were up 0.9% and 1.1% respectively.
The investors, who were dumbfounded when news of the truth surrounding the company first emerged have since breathed a collective sigh of relief at the verdict. On the other hand, the company issued a statement in the news release that it would seek reimbursement from the founder and former CEO Trevor Milton.
The agency had filed civil fraud charges against Milton at the same time that the U.S Attorney for the Southern District of New York unsealed a criminal indictment against him for securities fraud. Milton pleaded not guilty and has attempted to have the case thrown out or moved to another federal court. The SEC’s case against Milton is held in abeyance to the parallel criminal case.
In the midst of last year’s enthusiasm surrounding green-energy businesses, Nikola stood out like a prized pupil and had investors dreaming of the big returns they’d stand to gain once the company started mass production of its prized electric trucks. Enthusiasm around green-businesses going public through mergers or special purpose acquisition companies (SPACS) whet investors’ appetites enough for them to lose all reservation. Like Tesla’s CEO Elon Musk, Milton talked a big game and fought his battles on the popular social media site, Twitter, often addressing his “haters” and bragging about the latest toys his money had afforded him.
However, the catalyst for Milton’s downfall was when Hindenburg Research released an extensive report accusing the company of lying about its achievements. Key amongst the allegations levelled by Hindenburg was the idea that Nikola staged a video claiming to show a working model of its “Nikola 1” truck, positioning it atop an incline and rolling it downhill.
After the Hindenburg report in September 2020, Nikola’s shares eased from their June 2020 peak of $76, falling to the current market price of $9.25. The shares slumped 75% from the time the report was released. Within the same period, the S&P 500 rose about 34%, many SPAC ventures and electric truck ventures have since lost steam.
The administrative order that was issued by the SEC on Tuesday, alleges that Milton inflated the company’s stock with tweets and media appearances that falsely represented Nikola’s technological achievements, its in-house production capabilities and its order book. The SEC further claimed that Nikola misled investors regarding its expected costs for making hydrogen, the refuelling time of its prototype trucks and the details of the company’s planned partnership with General Motors (GM).
Amidst the controversy, the company has since attempted to distance itself from its founder, Trevor Milton, and recently even managed to deliver some early production models of its Tre Trucks. The company currently has a market capitalization of almost $4 billion.