Nikola Will Push Indicted Founder to Reimburse Expected $125M SEC Fine

Nikola Corp. set aside $125 million to potentially settle a Securities and Exchange Commission complaint but will seek to get indicted founder Trevor Milton to reimburse the civil penalty and other costs.

The startup electric truck maker is awaiting full SEC approval of the settlement, which covers alleged fraudulent claims by Milton, the company founder, and former executive chairman. He faces criminal trial next April on three federal fraud counts. Milton is free on $100 million bail.

"We intend to seek reimbursement from Mr. Milton for costs and damages arising from the actions that are the subject of the government investigations."

Nikola Corp. CEO Mark Russell

"We intend to seek reimbursement from Mr. Milton for costs and damages arising from the actions that are the subject of the government investigations," Nikola CEO Mark Russell said in opening remarks on a Q3 earnings conference call with analysts. "We look forward to bringing this chapter to a close and to focus with renewed determination to building our future."

Nikola decided to reserve the "best estimate" full loss contingency from the settlement in Q3 rather than spreading it out over the two years of installment payments it expects to make.

Milton, Nikola's largest shareholder, has sold millions of shares this year, most recently. dumping 7 million shares for $71.5 million in August.

According to Nikola's 10-Q filing with the SEC on Thursday, Milton filed an arbitration claim July 23 seeking indemnification and for Nikola to pay his defense costs "in certain actions." He was indicted July 29. Nikola said it will defend itself in arbitration.

The company has paid tens of millions of dollars to defend Milton and itself against the SEC and Justice Department allegations. It is seeking to get back that money from Milton as well as the SEC civil fine amount.

Progress against milestones

On the business side, Russell and CFO Kim Brady reviewed milestones the company has reached toward regular production of battery-electric Class 8 trucks (BETs) in the first quarter of 2022 followed by fuel cell electric versions (FCETs)  in 2023.

Nikola Tre BETs have been running on public roads since Oct. 15, and the company is on track to place 25 pre-series trucks with dealers and customers for evaluation by the end of the year. Because of the supply chain crisis, production components such as display screens may not be ready, making the trucks nonsaleable. Brady said they could be retrofitted later.

Nikola, which went public via a SPAC sponsored by VectoIQ in June 2020, has not yet generated meaningful revenue. It had $587 million in cash and $527.1 million available in equity lines of credit as of Sept. 30. If it does not raise any additional money in Q4,  the company's cash position would range between $340 million and $360 million at the end of the year, not counting access to money it could get from selling shares to Tumim Stone Capita. Nikola has redeemed shares worth about $72.9 million so far.

"We view the equity line as a valuable addition to our capital markets toolkit to leverage the liquidity in our shares while also giving us considerable flexibility around issue and timing," Brady said. "We continue to monitor the broader capital markets, which we view as our principal source of financing for Nikola."

Nikola has said it needs about $1 billion to remain on course toward completing its greenfield plant in Coolidge, Arizona, and to build out clean electric and hydrogen infrastructure to support zero-emission truck sales.

Cutting deals

Nikola has inked numerous deals to build out a hydrogen fueling supply and distribution network for the fuel cell trucks it expects to produce beginning in 2023. So far, it has built seven FCET prototypes — five in Arizona and two with joint venture partner Iveco in Ulm, Germany.

PGT Trucking signed a letter of intent for 100 FCETs, and Total Transportation Systems Inc. has a memorandum of understanding for 70 Tre FCETs along with 30 Tre BETs. 

Nikola said Thursday it has agreed to a long-term battery cell supply deal with LG Electronics that would guarantee cells through 2029. It declined to discuss details of the arrangement.

Nikola shares traded 17.47% higher intraday on Thursday at $14.93.

Related articles:

Flatbed hauler PGT Trucking intended to lease 100 Nikola fuel cell trucks

Nikola doubles equity-for-credit line to $600M

Milton's sell-off: Indicted Nikola founder dumps 7M shares. Transfers 600.000 others

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