Electric truck company founder Nikola was sentenced to four years in prison on Monday in a fraud case that highlights the financial carnage left by a crop of electric vehicle start-ups and their promoters .
A federal judge in Manhattan, Edgardo Ramos, sentenced Trevor Milton, Nikola’s founder and former chief executive, after a jury convicted him last year of one count of securities fraud and two counts of wire fraud. wire. Mr. Milton was accused of inflating the value of Nikola stock by making exaggerated claims about the company.
Mr. Milton told investors that Nikola has working prototypes of zero-emission long-haul trucks, has billions of dollars worth of binding orders and produces cheap hydrogen fuel. All those statements were false, said prosecutors, who asked Judge Ramos to hand down an 11-year prison sentence and a $5 million fine. Lawyers for Mr. Milton, who denied the allegations, asked for probation.
Judge Ramos also fined Mr. Milton $1 million and said he will be required to pay restitution, to be determined at a later date. Mr. Milton will remain free on bail while he pursues an appeal.
Breaking down in tears and quoting scripture in a long plea for mercy, Mr. Milton told the judge he felt “terrible for everyone involved.” But, he insisted, “I did not commit these crimes.”
Judge Ramos said that Mr. Milton was not as bad as some of the fraudsters he convicted, but he was told that “there are still real people hurt by your actions.” He added, “The cost of the loss is enormous.”
Several electric vehicle executives have been convicted of crimes, but Nikola is not the only new car company to attract billions of dollars in investment without making a profit or producing many cars or trucks, leaving shareholders with huge losses .
Inspired by Tesla’s success, investors have poured money into start-ups like Canoo, Lordstown Motors and Lucid Motors in recent years. Their backers and executives see electric cars as an opportunity to challenge established automakers like Ford Motor and General Motors — and get rich in the process.
With fewer parts than gasoline vehicles, electric vehicles should theoretically be easier to manufacture. But producing thousands of cars, establishing brands and meeting safety standards has proved more difficult and costly than many start-up executives and their backers expected. Some businesses have proven more adept at building lawsuits than cars.
Many electric vehicle start-ups have listed themselves on the stock exchange by merging with special purpose holding companies, which allow the businesses to avoid much of the regulatory disclosure and scrutiny that along with conventional initial public stock offerings.
Investors who bought these stocks suffered huge losses. Shares in Nikola, which is still in business but warned investors in November that it could run out of cash in the next 12 months, have lost 99 percent of their value since 2020.
Nikola’s stock was trading at about 90 cents a share on Monday afternoon; it traded above $65 in June 2020.
One group of investors benefited — short sellers, who profited by betting that the stock price would fall. Companies that specialize in exposing overvalued stocks are feasting on Nikola and other electric vehicle start-ups.
The false statements of Mr. Milton about Nikola was first reported by Hindenburg Research, an investment firm that specializes in detecting corporate wrongdoing.
Hindenburg also published a report on Mullen Automotive last year the company was accused of marketing electric cars imported from China as its own and said it would soon offer advanced solid state batteries, a technology that larger companies such as Toyota is still years away from perfecting. Mullen shares, which rose to more than $3,600 in 2020, recently traded for 13 cents.
A Mullen spokesman said that “many of the points on the Hindenburg were inaccurate at the time, and are now dated, making them completely inaccurate now.” In recent news releases, Mullen said it has begun producing electric trucks at a factory in Mississippi.
Another Hindenburg target is Lordstown, a would-be electric truck maker that took over a former GM plant in Ohio with the help of the Trump administration. President Donald J. Trump hosted Lordstown’s chief executive, Steve Burns, at white house in 2020, the company called the car “an incredible concept.”
Mr. resigned. Burns after Hindenburg accused him of inflating the number of orders for Lordstown’s pickup truck. The company filed for bankruptcy protection in June. (In October, an investment vehicle controlled by Mr. Burns bought Lordstown’s machinery and other assets.) Lordstown declined to comment.
said Mr. Burns said in an email that he did not escalate the orders, and noted that a study by an outside law firm found inaccuracies in the Hindenburg report. He bought the Lordstown property and hired some of the company’s engineers, Mr. Burns, because he believes that the business has a unique technology.
“Under the LandX brand, we intend to develop some exciting vehicles and look forward to announcing our full lineup soon,” said Mr. Burns.
Short sellers also targeted Faraday Future, a Los Angeles-based company that has so far delivered nine of its “ultra luxury” electric cars after a decade in business.
After J Capital Research, another short seller, published a report on Faraday in 2021, the company admitted it had misled investors when it claimed it had 14,000 reservations that were, in fact, unpaid ones. expression of interest.
In September, Faraday said in a regulatory filing that its “corporate culture fails to sufficiently prioritize compliance.” The company also disclosed that it is under investigation by the Securities and Exchange Commission and the Department of Justice.
Faraday is cooperating with authorities, a spokeswoman said in an email, adding that the company “has made significant changes and improvements to process and procedures to strengthen our governance and internal controls.”
Even for companies whose short sellers aren’t publicly accused of exaggerating their success and prospects, making cars has proven incredibly challenging.
Canoo announced orders worth $750 million from Walmart and other customers for its electric vans. The company is ramping up production at a factory in Oklahoma, a spokesman said, but declined to say when it would begin delivering vehicles in large numbers.
Canoo told investors in November there was “significant doubt” it would survive. Although accounting rules require the warning, Canoo has raised $380 million to fund its expansion, said Chris Nguyen, the spokesman.
Investors have become skeptical even of companies that have built thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles at the start of November, have fallen 95 percent from a high range in 2021. Shares of Lucid, which said it will make at least 8,000 luxury electric sedan this year, is down 93 percent. Shares of Rivian, a maker of electric pickups and sport utility vehicles that many analysts consider the start-up most likely to survive, fell 80 percent.
Less sophisticated investors often suffer losses. Mr. Milton, prosecutors said in a sentencing memo, “engaged in a sustained scheme to take advantage of individual, non-professional investors.” That included posting a YouTube video of a prototype rolling down a hill, creating the false impression that the company had a working vehicle.
Mr. also lied. Milton about his personal history, prosecutors said. He said he dropped out of college to pursue his entrepreneurial dreams even though he was fired for paying someone to do his academic work.
After selling some of his Nikola shares for $100 million in mid-2020, Mr. Milton for $83.5 million in luxuries such as an airplane and property in the Turks and Caicos Islands.
Nikola investors lost more than $660 million, prosecutors said in the memo, rejecting claims by an expert hired by the defense who said the losses could be blamed on Mr. Milton is lower and possibly zero.