Nikola Motors Has Uncertain Outlook After Trevor Milton's Indictment
Nikola Corp. (NASDAQ:NKLA) is a seven-year-old startup, but it hasn't escaped the conceptual stage with any of its zero-emission truck productions. In late 2020, regulators launched an investigation into Nikola founder and former executive chairman Trevor Milton. Since then, he has been charged with fraud and Nikola still doesn't have any vehicles on the road.
What will happen to Nikola Motors following Milton's indictment? Here's what investors can expect moving forward.
Trevor Milton built Nikola on the basis of fraud.
As of July 29, Milton has officially been charged with three counts of criminal fraud by a federal grand jury. Simultaneously, the SEC has imposed parallel fraudulent chargers.
The gist of it is that Milton lied about the company in numerous ways. In the indictment, prosecutors shared that "Milton’s scheme targeted individual, non-professional investors—so-called retail investors—by making false and misleading statements directly to the investing public through social media and television, print and podcast interviews."
In short, Miltoninflated his company to garner the public's approval and capital.
Milton isn't a billionaire anymore, and with an indictment officially upon him, he probably won't be one again anytime soon. Following the indictment, Milton surrendered to the authorities.
Milton might have artificially inflated NKLA stock, but it's coming back to bite him.
Shares for Nikola Corp. grew about 540 percent in the first five and a half months of 2020. Everyday investors were rallying in the company as Milton spewed falsities about Nikola's progress toward commercial availability.
Over the next three months, the stock lost about half of its recently achieved value in what many viewed as a strong-armed market correction. However, by September 10, 2020, short-seller Hindenburg Research came out with allegations of fraud against Milton and Nikola as a whole.
Of course, investors should take research from a short seller with a grain of salt. But ultimately, Hindenburg's allegations proved fruitful. The report led to officials conducting a serious investigation, one that has now resulted in Milton being charged with fraud.
Nikola stock is down 11.75 percent YTD, with a solid 7.75 percent drop occurring as the market opened on July 29.
What's next for Nikola Motors?
Nikola might have found a shortcut to success, but—as we all know—your time at the summit is never guaranteed.
While Milton already removed himself as executive chairman of the company, he's still its largest shareholder. When Nikola stock was at its best, Milton held about $8.5 billion in equity. That value has since dropped sharply.
In a press release, Nikola wrote, "Trevor Milton resigned from Nikola on September 20, 2020, and has not been involved in the company’s operations or communications since that time. Today’s government actions are against Mr. Milton individually, and not against the company. The company has cooperated with the government throughout the course of its inquiry. We remain committed to our previously announced milestones and timelines and are focused on delivering Nikola Tre battery-electric trucks later this year from the company’s manufacturing facilities."
Milton will inevitably be required to forfeit his profits from Nikola, but the company will be allowed to go on without him—under a much stricter lens. The brand will likely have a harder time convincing the public to buy in than adhering to regulators. After all, Milton's claims leading up to the company's IPO were lies in the first place, so investors entered their positions unwittingly.
In the future, the stock's value could be low enough that it would get delisted. However, we've seen companies come back from similarly egregious controversies, like the Krispy Kreme account scandal during the company's first go-round with the public market.