EV start-up founder may face jail in fraud case
The founder of an electric truck company faces significant prison time when he is sentenced Monday in a fraud case, highlighting the financial carnage left behind by electric vehicle start-ups and their promoters.
A federal judge in Manhattan will sentence Trevor Milton, the founder and former chief executive of truck company Nikola, after a jury found him guilty last year of one count of securities fraud and two counts of wire fraud. Mr. Milton was accused of inflating the value of Nikola stock by making extravagant claims about the company.
Mr Milton told investors Nikola had working prototypes of emissions-free long-haul trucks, had billions of dollars of binding orders and was producing low-cost hydrogen fuel. All those statements were false, said prosecutors, who have asked the judge to impose an 11-year prison sentence and a $5 million fine. Lawyers for Mr. Milton, who denied the charges, requested that he be sentenced to probation.
Some electric vehicle executives have been convicted of crimes, but Nikola was hardly the only new auto company to attract billions of dollars of investment without turning a profit or producing many cars or trucks, leading to huge losses for shareholders.
Inspired by Tesla's success, investors have poured money into startups like Canoo, Lordstown Motors and Lucid Motors in recent years. Their supporters and executives saw electric vehicles as an opportunity to challenge established automakers like Ford Motor and General Motors and get rich in the process.
With far fewer parts than gasoline cars, electric vehicles should theoretically be easier to build. But building thousands of cars, establishing the brand and meeting safety standards proved more difficult and expensive than many start-up executives and their backers expected. Some businesses proved more efficient at generating lawsuits than cars.
Many electric vehicle start-ups merged with special purpose acquisition companies to list themselves on stock exchanges, allowing the businesses to avoid much of the disclosure and regulatory scrutiny that accompanies a traditional initial public offering of stock.
Investors who bought these shares have suffered huge losses. Shares in Nikola, which is still trading but warned investors in November they could run out of money over the next 12 months, have lost 99 percent of their value since 2020.
One group of investors profited – short sellers, who make money by betting that a stock's price will fall. Companies that specialize in uncovering overvalued stocks feasted on Nikola and other electric vehicle start-ups.
Mr. Milton's false claims about Nikola were first reported by Hindenburg Research, an investment firm that specializes in exposing corporate misconduct.
Hindenburg also published a report on Mullen Automotive Last year the company was accused of marketing electric vehicles imported from China as its own and claimed it was close to introducing advanced solid state batteries, a technology that larger companies like Toyota are still years away from perfecting. Years away. Mullen's shares, which peaked at more than $3,600 in 2020, recently traded for 13 cents.
A spokesman for Mullen said that “Many points in Hindenburg were wrong at the time, and are now out of date, which now makes them all completely wrong.” In a recent news release, Mullen said it has begun manufacturing electric trucks at a factory in Mississippi.
Another target of Hindenburg was 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 hosts Lordstown Chief Executive Steve Burns white House In 2020, the company called the vehicle “an incredible concept”.
Mr. Burns resigned after Hindenburg accused him of inflating the number of orders for Lordstown's pickup trucks. The company filed for bankruptcy protection in June. (In October, an investment vehicle Mr. Burns controls purchased machinery and other Lordstown assets.) Lordstown declined to comment.
Mr. Burns said in an email that he never increased the orders, and noted that a study by an outside law firm found inaccuracies in the Hindenburg report. He bought the Lordstown assets and hired some of the company's engineers because he believed the business had unique technology, Mr. Burns said.
“Under the LandX brand, we intend to build many exciting vehicles and look forward to announcing our full lineup soon,” Mr. Burns said.
Short sellers have also targeted Faraday Future, a Los Angeles-based company that has delivered nine of its “ultra luxury” electric vehicles so far after a decade in business.
After J Capital Research, another short seller, published a report on Faraday in 2021, the company admitted that it had misled investors when it claimed 14,000 reservations were, in fact, unpaid expressions of interest. .
In September, Faraday said in a regulatory filing that its “corporate culture failed to adequately prioritize compliance.” The company has also disclosed that it is under investigation by the Securities and Exchange Commission and the Department of Justice.
Faraday is cooperating with authorities, a spokesperson said in an email, adding that the company has “made substantial changes and enhancements to processes and procedures to strengthen our governance and internal controls.”
Even for companies that have not been publicly accused by short sellers of exaggerating their achievements and prospects, producing vehicles has proven incredibly challenging.
Canoo has announced $750 million in orders from Walmart and other customers for its electric vans. A spokeswoman said the company was ramping up production at a factory in Oklahoma, but declined to say when it would begin delivering large numbers of vehicles.
Canoo told investors in November there was “substantial doubt” it would survive. Although accounting rules require the warning, Canoo has raised $380 million to fund its expansion, spokesman Chris Nguyen said.
Investors have also become suspicious of companies that have managed to produce thousands of cars. Shares of Fisker, which delivered about 3,000 vehicles in early November, have fallen 95 percent from highs in 2021. Shares of Lucid, which has said it will produce at least 8,000 luxury electric sedans this year, are down 93 percent. Shares of Rivian, the maker of electric pickups and sport-utility vehicles that many analysts believe is the start-up most likely to survive, have fallen 80 percent.
Less sophisticated investors often bear the brunt of losses. Mr. Milton, prosecutors said in a sentencing memorandum, “engaged in a sustained scheme to take advantage of individual, non-professional investors.” This included posting a video on YouTube of a prototype rolling down a hill, giving the false impression that the company had a working vehicle.
Prosecutors said Mr. Milton also lied about his personal history. He had said that he left college to pursue his entrepreneurial dreams, even though he was expelled for paying someone for his academic work.
After selling some of his Nikola shares for $100 million in mid-2020, Mr. Milton spent $83.5 million on luxuries such as airplanes and property in the Turks and Caicos Islands.
Nikola investors lost more than $660 million, prosecutors said in the memo. Nikola stock “effectively became worthless after the truth became known.”