Nikola founder Trevor Milton ordered to pay USD 167.7 million

U.S. District Judge Diane Humetewa has ruled that Trevor Milton, the founder of electric truck maker Nikola, must pay the company USD 167.7 million for making false and misleading statements to the public. This decision, handed down on Monday in Phoenix, Arizona, marks a crucial turning point in the ongoing saga surrounding the embattled entrepreneur and his former company.

Milton, who was sentenced to four years in prison in December 2023 following his conviction on fraud charges, now faces this substantial financial penalty in addition to his criminal sentence. The ruling upholds a divided arbitration panel's November 2023 award in Nikola's favour, reinforcing the severity of Milton's actions and their impact on the company he founded.

Judge Humetewa's decision hinges on the interpretation of a separation agreement that Milton signed upon resigning as Nikola's chief executive in September 2020. The judge determined that the arbitration panel acted within its authority when interpreting this agreement, thereby validating the financial award.

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The breakdown of the USD 167.7 million penalty is particularly noteworthy. Milton is required to pay USD 121.25 million, representing 97% of Nikola's USD 125 million fine resulting from a settlement with the U.S. Securities and Exchange Commission (SEC) in a civil fraud case. The remaining USD 46.5 million covers Nikola's legal fees and expenses incurred during the proceedings.

Milton's legal team contested the award, arguing that it was excessive and amounted to "rough justice." They claimed that the arbitration panel had failed to consider the "relative fault" of other Nikola executives, directors, and employees in the matter. However, Judge Humetewa found the panel's analysis to be plausible, including its decision to assign only 3% of the fault to Nikola for failing to prevent Milton from misleading investors.

The case against Milton stemmed from a series of false statements he made regarding Nikola's technological capabilities. Prosecutors successfully argued that Milton had lied to investors about key aspects of the company's operations and products. These misrepresentations included claims that Nikola had built a pickup truck "from the ground up," when in fact it had not. Milton also falsely stated that the company had developed batteries it was actually purchasing from other manufacturers. Perhaps most egregiously, he claimed progress on a "Nikola One" semi-truck that he knew was non-functional.

These fraudulent statements led to Milton's conviction in October 2022 by a Manhattan jury on two counts of wire fraud and one count of securities fraud. The conviction and subsequent sentencing sent shockwaves through the electric vehicle industry and raised questions about the due diligence processes of investors in emerging technologies.

Marc Kasowitz, representing Nikola in the case, expressed satisfaction with the judge's decision. "We are gratified but not surprised at the decision, in light of Milton's pattern of false and misleading public statements," Kasowitz stated. "We look forward to collecting the award." This statement underscores Nikola's determination to recover the funds and move past the controversy surrounding its founder.

The ruling serves as a cautionary tale for the tech and automotive industries, particularly in the rapidly evolving electric vehicle sector. It highlights the severe consequences of overstating technological capabilities and misleading investors, even in an industry known for its ambitious projections and cutting-edge innovations.

As Nikola attempts to rebuild its reputation and establish itself as a credible player in the electric truck market, this ruling provides a measure of vindication and potential financial recovery. However, the company still faces significant challenges in distinguishing itself from the controversies surrounding its founder and proving its technological capabilities.

Milton, now 42 years old, remains free on bail as he appeals both his conviction and the December 2023 sentence. The outcome of this appeal could potentially alter the trajectory of both Milton's personal legal situation and Nikola's financial recovery efforts.

The case, officially recorded as Nikola Corp v Milton in the U.S. District Court, District of Arizona (No. 23-02635), will likely have far-reaching implications for corporate governance and accountability in the startup ecosystem. It underscores the importance of transparency and honesty in corporate communications, especially for companies operating at the forefront of technological innovation.