Case Name: Nikola Corporation (f/k/a VectoIQ Acquisition Corporation)

Court: District of Arizona

Case Number: 20-CV-01797

Tentative Class Period: 3/3/2020 -9/15/2020

Scandal Level: 8.7

(1 = typical lemonade stand, 10 = Theranos)

“If it looks too good to be true,” the old saying goes, “It may be a truck with no engine sitting in neutral while rolling down a slight incline.”

That adage was never more apt than for this video of the all-electric, zero-emission semi-truck Nikola One driving down a rural road. Hindenburg Research, a short-seller focused on rooting out fraud and bringing it to the attention of investors, highlighted the video in a detailed report released September 10, 2020. Hindenburg claimed, among other things, that “in the face of growing skepticism over the functionality of its truck, Nikola staged a video called ‘Nikola One in Motion’ which showed the semi-truck cruising on a road at a high rate of speed. Our investigation of the site and text messages from a former employee reveal that the video was an elaborate ruse—Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”

Nikola Corporation vehemently defended itself in a statement four days later.  “Nikola never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that… The truck was showcased and filmed by a third party for a commercial. Nikola described this third-party video on the Company’s social media as ‘In Motion.’ It was never described as ‘under its own propulsion’ or ‘powertrain driven.’”

There’s some truth to that since, as the Securities and Exchange Commission points out in their recent indictment of Nikola CEO Trevor Milton, “The video does not have any narration or text.” So yeah, they never said it was ‘under its own propulsion,’ and nor by that logic did it say Santa Claus was at the wheel or that the trailer was stuffed with Twinkies.

If you do not buy Nikola’s defense, neither did Hindenburg, who titled their second report on Nikola, “We View Nikola’s Response As a Tacit Admission of Securities Fraud.” Worse for the company, the government didn’t buy it either:

“The video and the caption on the January 25, 2018 tweet and YouTube post were misleading,” the SEC wrote in its July 29 criminal complaint against Milton, “because the video showed the Nikola One moving down a road… ‘in motion,’ while omitting the fact that the truck was rolling down an incline due to gravity rather than under its own power.”

The SEC further detailed the effect of this video on the market: “The ‘In Motion’ video remained posted on Nikola’s corporate Twitter, Facebook, and YouTube accounts, as well as on its website, and was available for viewing by investors and prospective investors until at least September 2020. The misleading video, as presented on Nikola’s social media accounts and website, was material to investors during the period that VectoIQ and Nikola were publicly traded because it purported to show that as early as January 2018, Nikola had a truck that could drive.”

On July 29, 2021, Trevor Milton was indicted in Federal Court in Manhattan for alleged fraud. Audrey Strauss, U.S. Attorney for the Southern District of Manhattan, told the press that “Today's criminal charges against Milton are where the rubber meets the road.” (Nah, that’s no good. I would have said “Today we charged the man who could not charge his truck.”) Milton posted a $100 million bond, which is—and I use this term in a technical sense—a helluva lot of money.

As you might guess, it did not take long before investors hit the company with a securities class action.  The first complaint was filed on September 15, 2020 in the District of Arizona (20-CV-01797), five days after the Hindenburg report and one day after the company’s rebuttal. Plaintiff attorneys claimed that as a result of the first Hindenburg report, shares of Nikola fell $10.24, or 24%, from September 10 to 11, to close at $32.13 per share.

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