Business Maverick

Business Maverick

Nikola Whistle-Blower Made $600,000 Off Short Sale, Jury Told

Nikola Whistle-Blower Made $600,000 Off Short Sale, Jury Told
A test driver at the steering wheel of a Nikola Tre battery-electric heavy duty truck at the Nikola Corp.-Iveco SpA joint venture electric truck plant in Ulm, Germany, on Wednesday, Sept. 15, 2021. Nikola Iveco Europe GmbH hosted an event where its partner Iveco -- the commercial-vehicle unit of CNH Industrial NV -- is preparing to start series production of Nikola Tre heavy-duty trucks by year-end. Photographer: Andreas Gebert/Bloomberg

A former Nikola Corp. contractor whose allegations of fraud at the electric truck maker helped spur a criminal investigation told a federal jury he made $600,000 off a short seller’s report on the company.

Paul Lackey, an engineer at the electric-drive systems company EVDrive that did contract work for Nikola, was testifying under questioning by the defense in the criminal trial of Nikola founder Trevor Milton. He said he gave short seller Hindenburg Research information in exchange for a share of its profits from shorting the company’s shares.

Nikola Founder Trevor Milton Faces Securities-Fraud Trial 
Trevor Milton, founder of Nikola Corp., center, exits court in New York, US, on Monday, Sept. 12, 2022. Milton, who enticed auto-industry leaders and investors with his promise for a revolution in electric trucks, faces a securities-fraud trial beginning this week on allegations that he lied about his company’s development of environmentally friendly technology.

The US alleges that Milton, 40, lied to investors again and again to make Nikola look better than it was and pump up the stock. The defense has called the case “a prosecution by distortion.”

Lackey, a key government witness, took the stand on Wednesday for a second day of testimony, now under a fiery cross-examination by defense attorney Kenneth Caruso. Milton watched intently from the defense table in the lower Manhattan courtroom, hands clasped.

Caruso asked Lackey about a statement he made that he wasn’t using his knowledge to make money.

“But that’s exactly what you did, didn’t you?” Caruso asked.

“I was not trying to use it to make money,” Lackey said.

Caruso pressed on, asking if Lackey hadn’t used it to make $600,000.

“I did ultimately receive that money,” Lackey acknowledged.

‘Life-Changing’ Money

Caruso observed that $600,000 could be “a life-changing amount of money.”

“I’m not sure it’s a lot of money in this room, but it was a blessing to me,” Lackey said.

Read More: Nikola Contractor Couldn’t Believe His Eyes When He Saw Video

Lackey also acknowledged that he is part of a whistle-blower group that made a complaint about Nikola to the US Securities and Exchange Commission and that he could reap further compensation from an award for that role.

“You want some more money, don’t you?” Caruso asked.

“I wouldn’t mind it,” Lackey said.

Disruptor Disrupted

The allegations in the Nikola report by Nate Anderson’s Hindenburg, published in September 2020, captured Wall Street’s attention. Nikola shares tumbled about 24% in the two days following the report.

The trial comes two years after Milton abruptly resigned from the company’s board, following scrutiny once Nikola listed its shares in June 2020. The stock’s initial surge turned small investments by manufacturers such as CNH Industrial NV and Jeff Ubben’s ValueAct Capital Management into stakes worth billions of dollars at the time, reflecting optimism that Nikola could become a Tesla-like disruptor.

Read More: Nikola Founder Exaggerated the Capability of His Debut Truck 

Lackey on Tuesday had told the jury he was the owner of the previously anonymous @nikolainsider account, which shared images and details it claimed proved Milton had made false statements about Nikola’s progress.

“Paul Lackey is a brilliant, brave, down-to-earth guy who saw something wrong and spoke out,” Hindenburg’s Anderson said in an email. “We’re grateful to have a business model that rewards whistleblowers for doing the right thing.”

‘Sick to My Stomach’

Lackey’s information was part of a broader whistle-blower complaint that included Hindenburg and others. Hindenburg called Nikola an “intricate fraud” that, among other allegations, made non-working products appear as fully functional and staged a phony marketing video. Nikola pushed back, accusing the short seller of making misleading statements designed to manipulate its shares.

The report prompted investigations into the company by the SEC and the Justice Department.

Read More: Nikola Founder Milton Faces Jury in His Toughest Sales Job 

After Lackey stepped down from the witness stand, prosecutors called Elizabeth Fretheim, former head of business development at Nikola and now in charge of sustainability. They questioned Fretheim about “far-reaching” concerns she had over statements Milton made, including on a TeslaCharts podcast in July 2020, in which she says he misstated the company’s capabilities for producing hydrogen fuel.

Fretheim said she didn’t want to contradict the company’s executive chairman in front of customers but feared that his statements could violate SEC rules and open Nikola up to liability.

“If potential investors took us at our word that what he was saying was accurate, they could make investment decisions based on that and then come back if it turned out not to be true,” Fretheim testified, framing the heart of the government’s case against Milton.

She said some of his comments made her feel “sick.”

“To be honest, it made me kind of sick to my stomach,” Fretheim told the court. “Because of the potential repercussions.”

The Famous Video

Milton, charged with securities and wire fraud, faces a maximum prison term of 25 years if convicted of the most serious charge. The defense has cited “a distortion of Trevor Milton’s words, a distortion of Trevor Milton’s meanings, a distortion of Trevor Milton’s intentions.” It argues Milton was just following the company’s marketing plan and never said anything he didn’t believe to be true.

In opening statements on Tuesday the government called Milton a serial liar. “He repeatedly lied to investors about his company, and he made a billion dollars by doing so,” a prosecutor told the jury, saying, “This is Trevor Milton.” The defense put the dictionary definition of “distortion” on the courtroom screens.

Lackey then testified, under questioning by the prosecution, that he was so struck by a video of Nikola’s first prototype in action that he probed how the footage was produced — only to learn it was staged to make the powerless vehicle look like it was speeding along on its own steam.

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