Happy New Year!
In July of last year, as discussed in this PubCo post, the SEC and DOJ charged Trevor Milton, the founder, former CEO and executive chair of Nikola Corporation, with securities fraud for disseminating, primarily through social media, false and misleading information about Nikola’s technological achievements. In addition to civil SEC charges, Milton faced two counts of criminal securities fraud and one count of wire fraud, with maximum 20- and 25-year prison terms if convicted. He pleaded not guilty. But, interestingly, there was no word about the company. Was the company completely off the hook for the CEO’s alleged misrepresentations? Now we know that the answer is—far from it. In December, the SEC announced that Nikola had “agreed to pay $125 million to settle charges that it defrauded investors by misleading them about its products, technical advancements, and commercial prospects.” According to Gurbir Grewal, the SEC’s Director of Enforcement, “Nikola Corporation is responsible both for Milton’s allegedly misleading statements and for other alleged deceptions, all of which falsely portrayed the true state of the company’s business and technology.” And in this case, Milton’s alleged misstatements were attributed to the company even though many of the statements were communicated through Milton’s personal account, not the company’s corporate account. Although, according to the SEC, there were plenty of material misrepresentations in Nikola’s registration statements and other standard communications (i.e., not only alleged misstatements through Milton), the case reinforces the point that fraudulent or misleading statements don’t have to be in a prospectus or 10-K to be actionable—social media will do just fine. The case also highlights the need for companies to take social media into consideration in the context of disclosure controls and procedures, potentially including communications, to the extent that they relate to the company, that are made through personal accounts.
Is there anything topical missing from this case? There’s a SPAC. There’s social media. There’s an unorthodox, charismatic CEO. There are electric vehicles. There are hydrogen trucks with drinking fountains using water produced by the trucks as a by-product of their hydrogen fuel cells—or not. And, there’s a DOJ criminal indictment and an SEC complaint. Yes, I’m talking about the case against Trevor Milton, the founder, former CEO and former executive chairman of Nikola Corporation, who was charged last week with “repeatedly disseminating false and misleading information—typically by speaking directly to investors through social media—about Nikola’s products and technological accomplishments,” according to the SEC press release. What’s more, the DOJ charged, Milton exploited the SPAC structure with a “self-proclaimed media blitz” of false and misleading public statements during a period of time that, in an IPO setting, would have been considered a “quiet period.” In addition to civil SEC charges, Milton faces two counts of criminal securities fraud and one count of wire fraud, with maximum 20- and 25-year prison terms if convicted. He pleaded not guilty. As described by the U.S. Attorney for the SDNY (with an appropriate vehicular metaphor), “[a]s alleged, Trevor Milton brazenly and repeatedly used social media, and appearances and interviews on television, podcasts, and in print, to make false and misleading claims about the status of Nikola’s trucks and technology. But today’s criminal charges against Milton are where the rubber meets the road, and he now will be held accountable for his allegedly false and misleading statements to investors.” The case reinforces the point that fraudulent or misleading statements don’t have to be in a prospectus or 10-K to be actionable—social media will do just fine. According to the Regional Director of the SEC’s Fort Worth Regional Office, “[p]ublic company officials cannot say whatever they want on social media without regard for the federal securities laws. The same rules apply, and the SEC will hold those who make materially false and misleading statements accountable regardless of the communication channel they use.” Notably, this is the second recent case involving SEC charges of misleading claims in connection with a SPAC. (See this PubCo post.)