Justice Dept., SEC Probe Fraud at Nikola09/16/2020
Both the Justice Department and the SEC are reportedly investigating claims of fraud at electric truck startup Nikola just a week after the company announced a $2 billion deal with General Motors.
The Wall Street Journal, citing anonymous sources, said the Justice Department has joined U.S. securities regulators in examining allegations that electric-truck startup Nikola Corp. mislead investors by making exaggerated claims about its technology.
Reports came out earlier this week saying the Securities Exchange Commission would investigate Nikola for what it called “intricate fraud.”
The claims were leveled against the startup by a firm called Hindenburg Research, which admits that it is approaching the matter as a “short seller” and stands to profit if Nikola stock tanks. Nikola responded to the Hindenburg claims in a press release Monday, calling Hindenburg “an activist short-seller financially motivated to manipulate the market and profit from a manufactured decline in Nikola’s stock price…”
The Nikola release said that the Hindenburg report “…contains a number of false and misleading statements regarding the Company’s operations and multi-year, groundbreaking R&D efforts.”
Nonetheless, the Hindenburg allegations were damning, most notably that Nikola had faked many of its claims and that it would use off-the-shelf components from other tech companies in its products without identifying them as such rather than developing parts on its own. Nikola defended that practice, stating in the release that, “This is common practice among vehicle manufacturers and Nikola often blocks supplier names from the view of media and competitors.”
Hindenburg said that photos and a video of one of Nikola’s semi trucks were faked and that the truck could not actually move under its own power. Nikola admitted this in its release but added that the company “…ultimately decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion. After pivoting, Nikola produced prototypes for the Nikola Two, which are self-propelled and have been frequently demonstrated, beginning with demonstration runs at Nikola World in April 2019.”
Nikola defended a video showing the Nikola One merely rolling unpowered down a hill, claiming that, “Nikola never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that…”
GM has not released an official statement since announcing the strategic partnership with Nikola Sept. 8. In that announcement GM laid out the deal with the startup: “Nikola Corporation (NASDAQ: NKLA) and General Motors Co. (NYSE: GM) today announced a strategic partnership that begins with the Nikola Badger and carries cost reductions through Nikola’s programs, including: Nikola Badger, Nikola Tre, Nikola One, Nikola Two and NZT. As part of the agreement, Nikola will utilize General Motors’ Ultium battery system and Hydrotec fuel cell technology, representing a key commercialization milestone for General Motors.”
On Sept. 12 GM Senior Communications Manager James Cain told Autoweek, “This alliance isn’t about Nikola technology; it’s about GM technology. GM is supplying our fuel cell (developed with Honda) for the Badger and Nikola’s Class 7 and 8 trucks. For the Badger alone, we are providing our EV truck architecture and Ultium battery technology produced by the GM-LG Chem joint venture. We will engineer, homologate and build the Badger in a GM plant. In exchange, we get shares in Nikola.”
Nikola said in its Monday release that it will cooperate with authorities.
“Nikola has contacted and briefed the U.S. Securities and Exchange Commission regarding Nikola’s concerns pertaining to the Hindenburg report. Nikola intends to fully cooperate with the SEC regarding its inquiry into these matters.”
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