A popular electric truck manufacturer, Nikola Corporation, agreed to pay the US Securities and Exchange Commission (SEC) $125 million in order to settle charges in a case, which alleged that the company defrauded investors by misleading them about its products, business prospects and technical capacity. The SEC announced the matter on Tuesday, December 21.
The action comes after the US Attorney’s Office for The Southern District Of New York indicted Trevor Milton, the Founder and former CEO of Nikola Corporation, for making false and misleading statements to investors. In addition, the SEC approved the charges.
The SEC stated that Milton misled investors through statements in social media and elsewhere that “falsely gave investors the impression that Nikola had reached certain product and technological milestones.”
In Tuesday's statement, Gurbir Grewal, the Head of the SEC’s Division of Enforcement, said: “As the order finds, Nikola Corporation is responsible for both 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. This misconduct, and the harm it inflicted on retail investors, merits the strong remedies today’s settlement provides.”
The SEC stated that Milton intentionally targeted retail investors on social media with his allegedly misleading statements about the company’s technology and products.
Nikola agreed to settle the charges without admitting or denying the findings from the SEC that it had violated the disclosure control and antifraud provisions of federal securities laws. Additionally, Nikola agreed to continue cooperating with the regulator’s ongoing investigation and litigation. Moreover, the SEC’s order establishes a Fair Fund to return the penalty proceeds to victim investors.
Many Firms Prefer Avoiding Investigations
The development by the SEC comes at a time when the regulator’s enforcement actions have increasingly involved multinational actors and domestic firms and their executives who are believed to have engaged in securities law violations. Nikola is one of the electric-vehicle startups under investigation by authorities about potentially misleading investors. The others include Canoo, Lucid and Lordstown Motors.
While the penalty levied against Nikola serves as a warning to all companies, a series of crimes committed by firms is ongoing and is getting worse. Last year, the global financial investment bank, Goldman Sachs agreed to pay $2.9 billion in penalties to settle charges on its role in the massive bribery scheme involving Malaysia’s 1MDB fund. The penalty was the largest US fine ever in a corruption case. In September 2020, JPMorgan Chase agreed to pay over $920 million to settle charges after it had admitted to being involved in a multiyear scheme to manipulate market prices through illegal trading practices. In October 2020, The Office of the Comptroller of the Currency (OCC) fined Citigroup to pay $400 million for unsound and unsafe banking practices, including its repeated failures to have systems in place to catch money launderers.
Such headlines and many more scream huge dollar settlements and highlight the scope, breadth and depth of the ongoing crime spree. While penalties and fines levied against these companies appear significant, their reoffending show otherwise. Even hundreds of billions of dollars in fines and penalties are little more than a cost of doing business. And, this explains why these companies keep breaking the law.
