Nikola Corporation and founder/former executive chairman Trevor Milton face at least two proposed class action lawsuits in the wake of a report from short seller Hindenburg Research that painted the battery- and hydrogen-electric semi-truck maker as having grossly misrepresented or exaggerated its technological capabilities and overall business outlook.
At the center of both complaints is a September 10 report from Hindenburg—a company that says it “specializes in forensic financial research,” aiming to identify accounting irregularities, undisclosed third-party transactions, bad actors in management and other unscrupulous business conduct—titled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” Per the lawsuits, Nikola announced in a September 8 press release a strategic billion-dollar partnership with General Motors that Milton touted as a boon to the hydrogen-electric vehicle maker’s vision for a “zero-emission future” and production operations.
“We made three promises to our stakeholders and have now fulfilled two out of three promises ahead of schedule,” Milton said in the press release.
Hindenburg asserted, however, that it had gathered “extensive evidence—including recorded phone calls, text messages, private emails and behind-the-scenes photographs,” evidencing “dozens of false statements by” Milton, the New York case says. According to the suit, Hindenburg concluded Nikola is “an intricate fraud built on dozen [sic] of lies over the course of . . . Milton’s career,” with the defendant having issued a slew of misrepresentations in order to grow the company and secure a pact with GM.
Upon the release of Hindenburg’s report, Nikola’s stock price sank more than 11 percent, closing at $37.57 per share on September 10, an event followed three days later by Bloomberg reporting the SEC had begun to look into Nikola to vet the allegations made by the research firm, the lawsuits say.
Then, on September 15, the Wall Street Journal shared that the U.S. Justice Department had joined the SEC in probing Nikola.
Upon this news, the defendant’s stock fell by more than eight percent, closing at $32.83 per share, the suits relay.
Nikola, founded by Milton in 2015, purports to operate as an integrated zero-emissions transportation systems provider that designs and manufactures battery-electric and hydrogen-electric vehicles, electric vehicle drivetrains, components, storage systems and hydrogen fueling station infrastructure, the Arizona complaint states.
In the months leading up to the release of the Hindenburg report, which took place just two days after Nikola announced its partnership with GM, the defendants issued a number of false and misleading statements in addition to failing to disclose materially adverse facts about the company, the suits allege.
In particular, the lawsuits highlight Nikola’s apparent overstatement of its in-house design, manufacturing and testing capabilities. Though the company has represented that it develops “almost everything in-house,” and used videos that misleadingly back up this claim, Hindenburg reported that Milton has instead “established an undeniable track record of taking from others and claiming technology as his own.”
“He has quietly used off-the-shelf products from third-parties while loudly claiming to have vast proprietary technology,” Hindenburg said.
Further, the Arizona complaint relays the Hindenburg report also alleged the defendants lied about the claim that Nikola had five Tre trucks coming off the assembly line in Ulm, Germany, the news of which caused stock prices to fall deeper on September 11. Hindenburg also took aim at the fact that Nikola has reportedly failed to produce hydrogen at the lower prices the company has boasted, as well as a supposed “test video” that appeared to show a Nikola truck driving down a road at a high speed.
“Our investigation of the site and the 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,” Hindenburg claimed.
Complicating matters even more for Nikola was a second report issued by Hindenburg on September 15 that centered on the company’s responses and non-responses to the first report, the lawsuits say. That report, titled “We View Nikola’s Response As a Tacit Admission of Securities Fraud,” in addition to prodding the company and Milton’s response to the first report, listed 43 questions raised in the first report that Nikola has yet to respond to, according to the lawsuit.
On its website, Nikola railed against the Hindenburg report, calling it “opportunistic” and geared to “provide a false impression to investors and to negatively manipulate the market in order to financially benefit short sellers, including Hindenburg itself.”
The lawsuits can be found below.
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