On July 29, 2021, the U.S. Attorney’s Office for the Southern District of New York unsealed a securities and wire fraud indictment against Trevor Milton, the founder and one-time chairman of Nikola Corporation (“Nikola”), a pre-revenue electric- and hydrogen-powered vehicle company which went public through a merger with a special-purpose acquisition company (“SPAC”).[1]  The Indictment alleges that Milton made deceptive, false, and misleading claims regarding Nikola’s products and technology, which were directed at retail investors through social media and television, print, and podcast interviews.  The SEC also filed a parallel civil action against Milton, alleging violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and which contends that Milton engaged in a “relentless public relations blitz” on social media and the popular press directed at “Robinhood investors” in order to inflate Nikola’s stock price.

These actions further confirm the heightened law enforcement and regulatory scrutiny of SPACs, as well as continuing interest by government authorities in protecting retail investors in so-called meme stocks.[2]

The Allegations

The Indictment alleges that from at least November 2019 through September 2020, Milton made false and misleading claims regarding the development of Nikola’s products and technology, which “addressed nearly all aspects of the business.”  These alleged misstatements included:  (1) claiming that the company had early success in creating a “fully functioning” semi-truck prototype, when Milton allegedly knew the prototype was inoperable; (2) falsely asserting that Nikola had engineered and built an electric- and hydrogen-powered pickup truck; (3) stating that the company was producing hydrogen at a reduced rate, when Milton allegedly knew “no hydrogen was being produced at all by Nikola”; (4) claiming Nikola had developed batteries and other components in-house, when Milton knew they were being acquired from third parties; and (5) stating that the company had binding orders representing billions in future revenue, while knowing that “the vast majority of those orders could be cancelled at any time and were for a truck Nikola had no intent to produce in the near-term.”

The Indictment further alleges that these false and misleading statements, which were made through social media and other popular press, were specifically made “to induce retail investors to purchase Nikola stock,” including “investors who had no prior experience in the stock market and had begun trading during the COVID-19 pandemic to replace or supplement lost income or to occupy their time while in lockdown.”  Notably, the Indictment contrasts the retail investors who suffered losses in Nikola with “early strategic investors, [sponsor] shareholders, and PIPE investors”—who allegedly “had access to more complete and accurate information during their due diligence periods,” including by reviewing Nikola’s books and records, touring its facilities, and interviewing its engineers and management.  These early investors “were able to sell their Nikola stock for a profit at a time when retail and other investors were purchasing stock” based on Milton’s alleged misstatements.  The press release accompanying the Indictment also claims that Milton “took advantage of the fact that Nikola went public by merging with a [SPAC], rather than through a traditional IPO, by making many of his false and misleading claims during a period where he would not have been allowed to make public statements under rules that govern IPOs.”

The SEC’s companion civil complaint cites a number of internal Nikola communications in further support of these claims.  For example, the SEC complaint alleges that Milton urged company executives to “do something” or to put out “good news” as a way to counteract stock price declines.  The complaint further cited correspondence between Milton and another senior executive highlighting the large number of online retail investors (so-called “Robinhood investors”) who purchased Nikola stock, in which the other executive remarked that the investors “have no clue about Nikola, other than their friends told them to buy,” and that there is “[a] lot of hype out there with retail investors,” to which Milton responded “That’s how you build a foundation.  Love it.”


These actions against Milton are yet another example of increasing governmental scrutiny of companies taken public through de-SPAC transactions, including potentially signaling a particular interest in pre-revenue companies that overstate the status of their technologies and demand for their products.  They also reflect that prosecutors and regulators may be acutely focused on the differences between SPACs and traditional IPOs, including that SPACs (unlike traditional IPOs) are not subject to a “quiet period” that generally prevents executives from providing information not previously disclosed in the registration statement and prospectus until forty days after the new stock begins trading, and the extent to which those differences may facilitate wrongdoing.

Moreover, in addition to highlighting the potential for alleged fraud by SPAC targets, the actions also contain a cautionary note for early investors in SPACs, including sponsors and PIPE investors.  Although the actions do not bring any claims against these entities, the Indictment specifically notes that such investors, who had access to internal information through the due diligence process, were able to sell their shares for a profit to less sophisticated retail investors, who were only able to rely on the company’s allegedly fraudulent statements, raising the specter of potential insider trading investigations.

Finally, the actions may further reflect heightened regulatory interest in protecting “individual, non-professional” investors who trade online in so-called meme stocks, which are stocks that have experienced sudden increases in value largely based on retail investor trading after being touted on social media and other online forums.  Notably, the actions follow statements made in June by SEC chairman Gary Gensler that the SEC was considering changes to market rules in response to the meme-stock phenomenon, as well as reports that the SEC has launched investigations into the trading activity of certain meme stocks.

[1] See our prior discussion of civil litigation filed against Nikola, https://www.clearygottlieb.com/news-and-insights/publication-listing/spac-sponsors-beware-the-rising-threat-of-securities-liability.

[2] See our prior posts covering enforcement actions related to de-SPAC transactions, https://www.clearygottlieb.com/news-and-insights/publication-listing/acting-director-of-secs-corp-fin-issues-statement-on-disclosure-risks and https://www.clearygottlieb.com/news-and-insights/publication-listing/sec-brings-spac-enforcement-action-and-signals-more-to-come.