Milton's Sell-Off: Indicted Nikola Founder Dumps 7M Shares, Transfers 600,000 Others

Indicted Nikola Corp. founder Trevor Milton sold 7 million of his 79 million shares in the electric truck startup last week, pulling in $71.5 million that he may need for his legal fight against federal fraud charges.

Separately, Bloomberg reported Milton has hired two lawyers who defended Tesla CEO Elon Musk when he ran afoul of the Securities and Exchange Commission.

Terence Healy represented Musk, and Brad Bondi served as counsel for Tesla Inc. when the SEC investigated the electric carmaker's CEO over his 2018 tweet claiming he had secured funding to take Tesla TSLA private, according to Bloomberg. Musk paid a $20 million fine and agreed to step down as Tesla chairman. 

The charges against Milton are more serious. He was charged criminally with two counts of securities fraud and one count of wire fraud on July 29, stemming from allegations that he sought to manipulate the company's stock price through exaggerated and false claims about the company's technology and products. 

The SEC also is suing Milton for alleged violations of federal securities laws. 

Milton is free on a $100 million bond secured by a 2,000-acre Utah ranch he purchased for $32.5 million in 2019.

Once a loquacious fixture on social media, Milton has declined to speak publicly since leaving Nikola, other than through his legal team, which calls the charges meritless.

Transferring Shares To His Spouse

Milton remains Nikola's largest shareholder, but that stake has been reduced to about 17.5%, or just under 71 million shares, through the most recent sales. The sales last Wednesday, Thursday and Friday were among the largest he has made since a lockup expired last December. Milton resigned as executive chairman and gave up his board seat in September.

He cashed out $49 million worth of shares in April at about $14 a share. Last week's sales ranged from $10.01 to $10.63, about 30% below where it traded before Milton's indictment.

On July 23, six days before his indictment, according to SEC filings, Milton transferred 600,000 shares to his spouse. Last Friday, 500,000 of the shares were sold for an average price of $10.18, bringing about $5.1 million. After the sale, Milton's spouse still owned 1.2 million shares, which the SEC said in a footnote could still be considered in Milton's control.

Meanwhile, CEO Mark Russell owns 12.3% of the outstanding shares, and directors and senior executives collectively own 22.6%, according to Nikola's quarterly 10-Q SEC filing. 

The concentrated holdings, including those of Milton, who is under a three-year standstill agreement to vote his shares with the recommendations of the board, could make it difficult for new shareholders to influence decisions on the company's direction, the company said.

Dilution Pressure

In addition to the 7 million Milton-owned shares changing hands, Nikola NKLA  faces additional dilution pressure under a three-year line of credit for up to $300 million secured by shares it would sell at a 3% discount to Tumim Capital. Nikola can draw down on the credit line by dictating when Tumim buys the shares. 

But with a stagnating stock price, Nikola could be forced to register more than the 18.1 million shares it allocated under the purchase agreement with Tumim. Nikola estimates it will have 418 million outstanding shares at the end of the year. If the share price is depressed when it sells to Tumim, an additional registration would dilute other shareholders.

So far, according to its 10-Q filing, Nikola has sold just over 1 million of the shares to Tumim for $14.8 million. Nikola may seek to sell shares to get the rest of the $300 million by the end of the year, Chief Financial Officer Kim Brady said on Nikola's Q2 earnings call last Tuesday. 

At Friday's closing price of $10.28, that would bring in only about $166 million before the discount.

Related articles:

Nikola moves on from Trevor Milton to tackle supply chain challenges

The case against Nikola's Trevor Milton: ‘Lied about nearly everything'

Nikola goes private to raise up to $300M in new money

Click for more FreightWaves articles by Alan Adler.

Image by Jiří Rotrekl from Pixabay