Nikola Corp. founder Trevor Milton was sentenced to four years in federal prison and fined $1 million on Monday following a legal saga that began with a short seller’s report that the electric truck maker was built on an “ocean of lies.”
Milton was allowed to remain free on the $100 million bond he posted before his 2022 trial. No surrender date was set.
Prosecutors sought an 11-year sentence, a $5 million fine, forfeiture of a ranch in Utah that was the subject of one of Milton’s three fraud convictions and an undetermined amount of restitution to investors. Milton sought probation. Revised federal sentencing guidelines suggested 27 to 33 years and nine months. U.S. District Judge Edgardo Ramos said he was sentencing Milton to four years on each of three convictions to be served concurrently.
According to data from the U.S. Sentencing Commission’s Judiciary Sentencing Information database, 29 white-collar crime defendants convicted during the last five years received an average sentence of 16 years and four months.
In its sentencing recommendation, prosecutors pointed to numerous false and misleading statements about Nikola’s achievements and technology prowess including:
- Engineering and building an electric- and hydrogen-powered pickup truck known as “the Badger” from the “ground up” using Nikola’s parts and technology.
- Beginning production of hydrogen at a reduced cost.
- Taking reservations for the future delivery of Nikola’s semi-trucks that were binding orders representing billions in revenue.
Sentencing pleas
During the 2 1/2-hour sentencing hearing in U.S. District Court in Manhattan, New York, the government stressed that Milton caused real harm to real people.
“He lied repeatedly and doubled down,” assistant U.S. Attorney Matthew Podolsky told Ramos. “General deterrence is important. The case has notoriety in the press. People listened to podcasts. There has to be a message that you have to be honest. A message must be sent.”
Milton defense attorney Marc Mukasey said Milton had no malice in his actions.
“Trevor was open with executives about a real belief that communicating with investors would bring real value to Nikola,” he said. “Multiple jurors gave interviews afterward and said ‘We didn’t think he intended to harm anyone.’ The portrayal of Trevor by some in the media… that Trevor is a financial serial killer is wrong. There was nothing predatory here. He wanted to be loved and praised like [Tesla founder] Elon [Musk].”
During Milton’s trial, top Nikola executives testified they warned Trevor about telling the truth in his interviews, even to the point of holding an “intervention” with him.
Mukasey also tried an emotional appeal based on Milton’s wife. Chelsea, who suffers from Lyme disease.
“She needs his warm heart as a caregiver,” Mukasey said. “Her doctor’s [sentencing recommendation] letter says she needs him. His heart beats for her.”
A sobbing Milton told the judge he feels “terrible for everyone involved.” But he never apologized during a rambling statement. Instead, he talked about ethnic cleansing of the Cherokee Indians; the wrongful conviction of boxer Rubin “Hurricane” Carter in 1967; colors in heaven that don’t exist on earth; and difficulties he encountered while serving as a Mormon missionary in South America. He concluded with: “Let me stay with my wife. Thank you, your Honor.”
Outside court, Milton told reporters he felt Ramos was a “very compassionate” judge who “understood the situation.” He said “I think we’re going to win” an appeal of his sentence.
Joining the annals of white-collar fraudsters
Milton, 41, joins the growing annals of white-collar criminals, such as Elizabeth Holmes, founder of the Theranos blood-testing scam, and Sam Bankman-Fried, the founder of the FTX cryptocurrency exchange. Both were convicted of misleading investors while personally reaping hundreds of millions of dollars.
The government said investors lost between $660.8 million and $673.6 million by bidding up Nikola’s share price following Milton’s claims in hundreds of social media posts and in broadcast, print and online media interviews.
Milton was convicted of one count of securities fraud and two counts of wire fraud in October 2022 following a 3 1/2-week jury trial. He was acquitted on an additional securities fraud count. He has been free on a $100 million bond. Milton lost a bid for a new trial in August.
Judge Ramos dismissed a comparison between Milton and Holmes, who began serving an 11-year, nine-month sentence in May.
“Ms. Holmes put it out there knowing it did not work,” Ramos said. “That’s not what Mr. Milton did, I find. I sat through the trial. I believe the jury got it right. Over the course of many months, you used your talents to tout the company in ways that were false.”
But he also chided Milton for his misstatements.
“What you said was materially wrong,” Ramos told Milton. “There was a theme to your letters, that you are a visionary and you have enthusiasm that causes you to get ahead of yourself. Today, you said you never intended to harm anyone. The jury found otherwise.”
From the beginning …
Nikola began in the basement of Milton’s Utah home in 2014. The goal was to build a hydrogen-powered fuel cell heavy-duty truck for hauling freight while emitting zero emissions other than water vapor. Milton showed a prototype of the truck called the Nikola One in 2016, claiming it was capable of operating under its own power and was not just a “pusher” concept truck.
A video of the truck posted on the internet gave the impression it was running on its own power. Investigations later found the truck was coasting down a steep grade with no propulsion.
That contention became the heart of dozens of falsehoods alleged by Hindenburg Research in September 2020, a little more than three months after Nikola went public in a reverse merger with VectoIQ Acquisition Corp., a special purpose acquisition company.
The 67-page Hindenburg report landed just two days after Nikola announced a manufacturing and equity tie-up with automotive giant General Motors. That deal later collapsed, as did a plan to make battery-powered refuse trucks for Republic Services.
Subpoenas, a fine and convictions
After vowing on social media to refute the claims, Milton resigned as Nikola executive chairman and gave up his board seat. Hindenburg’s allegations led the U.S. Justice Department and Securities and Exchange Commission to open investigations and subpoena Nikola executives. The SEC fined the company $125 million in December 2021.
At one time, Milton owned more than 25% of the company’s stock. His holdings rose in value from approximately $1.1 billion in March 2020 to a peak of approximately $7.3 billion in June 2020. He has sold hundreds of millions of dollars in shares following the expiration of a six-month lockup period three years ago.
Milton still owns about 8% of the company whose share price traded Monday on the Nasdaq at 89 cents. It closed at $79.73 on June 6, 2020, two days after the SPAC merger closed.
Nikola on the ropes
In a statement, Nikola continued a stance of distancing itself from Milton despite the arbitration and possible future financial actions.
Nikola itself is on the ropes, having filed a notice of going concern with the SEC in February that suggested it might not be in operation in 12 months. Macroaxis, a San Francisco-based fintech company, suggests Nikola has an 81% probability of bankruptcy.
The company is short of cash to scale the fuel cell trucks it is building at a plant in Coolidge, Arizona. Following shareholder approval that doubled the number of authorized shares to 1.6 billion, Nikola has rapidly diluted current shareholders by selling new shares and borrowing money that would be repaid by stock.
The company won $165 million from Milton in an arbitration case that concluded in October. It is also seeking to claw back legal fees paid for Milton it agreed to pay as part of his separation.
Nikola continued to distance itself from Milton despite the arbitration and possible future financial actions.
“We are pleased to move forward and remind the public that the company founder has not had any active role in Nikola since September 2020,” a company statement said.
Nikola recalled 209 battery-electric trucks in August after several battery fires that began in June. It has set aside $61.8 million to replace the batteries, a cost it must bear alone because it owned the battery supplier Romeo Power.
Nikola purchased Romeo in August 2022 in a $144 million stock deal and liquidated the company in June of this year, selling Romeo’s battery pack production assets to Mullen Automotive for $3.5 million. It has not announced a new battery supplier for the recalled trucks, which it paid to have shipped to its Arizona plant.
Editor’s note: Updates with Nikola comment and remarks from Milton outside court.
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