As the date of his federal fraud trial nears, Nikola founder Trevor Milton casts a long shadow over his own fate and that of the electric truck manufacturer.
Milton has not actively participated in the startup electric truck and hydrogen maker’s business in more than 16 months. Yet his influence as a major shareholder weighs heavily on the company.
Most recently his vote against increasing the number of authorized shares in Nikola — a move that would dilute his approximately 11% ownership stake — threatens the company’s future. Milton also had voting rights to a substantial block of shares jointly owned with CEO Mark Russell. Milton relinquishes those voting rights to Russell in June 2023.
So important is the financial flexibility that comes with having more shares to use for fundraising to scale the business that Nikola Chairman Steve Girsky hosted a webcast Friday urging shareholders to vote in favor of the proposal. Girsky replaced Milton, who was executive chairman, as nonexecutive chairman in September 2020.
“I want to be super clear about this,” Girsky said, according to Forbes. “We need your vote for proposal two, which allows us to increase the number of shares for our company’s common stock. If you don’t vote, that’s effectively a vote against this important proposal.”
Milton voted against Proposal 2 — which would increase the number of authorized shares from 600 million to 800 million. That led to an adjournment of Nikola’s annual meeting on June 1. Because the proposal involves a change in company bylaws, it requires a favorable 50% plus one vote of all outstanding shares. Other proposals required just a majority of shareholders voting.
The meeting reconvenes virtually on Thursday, after which Nikola will release the result of the voting. If the measure doesn’t get enough votes, Nikola could try again in a year when Russell would control the jointly owned voting block.
Milton’s latest irritant
The cost of soliciting proxies for the increased number of shares is just the latest irritant Milton has placed in the way of the management team that succeeded him following his September 2020 resignation.
Indemnifying Milton against federal investigations is expensive. Nikola spent tens of millions of dollars in legal fees before the filing of three counts of fraud against Milton in July 2021.
The company agreed to pay the Securities and Exchange Commission a $125 million fine over two years related to claims Milton made about Nikola’s technological prowess and other assertions found in an internal investigation to be untrue. The company wants Milton to reimburse the company the cost of the fine and other legal expenses.
As much as Nikola has tried to put Milton in the rearview mirror by canceling products and projects he supported — such as an electric pickup truck called the Badger and an electric-powered motorsports division — it just can’t shake him.
Milton has sold tens of millions of Nikola shares in multiple transactions since a lockup expired in December 2020. He reduced his once-dominant ownership of Nikola from more than 20% to the current 11%, falling behind Russell, who holds about 12% not counting the shares with Milton.
Milton’s legal problems worsen
Prosecutors added a fourth charge against Milton last Wednesday. He allegedly defrauded the seller of a land contract for Utah property by offering to partially pay for the deal in Nikola stock options. Milton’s legal team on filed a motion Tuesday seeking to shield Milton’s wealth, lifestyle and spending habits from jurors at his trial calling it “irrelevant and unfairly prejudicial.”
Attorneys said in motions reviewed by Bloomberg that Milton’s wealth, once nearly $9 billion, has no relevance to whether he committed a crime. Milton used his 2,700-acre Utah ranch to secure his release on $100 million bail.
Pressing for more time
Late Monday, Milton’s attorneys filed a letter pressing for a 30-day delay versus seven days offered by prosecutors.
The letter said the fourth charge differs from the first three, which allege Milton tried to pump up enthusiasm by retail investors for Nikola stock through a persistent presence on social media and interviews with financial media. The land contract issue is unrelated and would require a “pivot” in trial strategy, they said.
“Nothing in the original Indictment provided notice that these issues would be presented at
trial, let alone result in Count Four,” Milton attorney Bradley Biondi wrote to Ramos. “Defense counsel first learned that this transaction might be presented at [Milton’s] trial on June 16, 2022. Nothing in the prior discovery from the government referenced the private real estate transaction or otherwise provided any forewarning.”
Ramos earlier ruled against Milton’s bid to get his trial moved out of New York to Utah, where he resides, or to Phoenix, where Nikola has its headquarters. The trial date was set for July when he declined to appeal the denial of a venue change.
Milton’s attorneys argued that pressing ahead with the trial creates a “Hobson’s choice – to go to trial unprepared on a new count that carries a term of imprisonment of 20 years or to forego his constitutional right to a speedy trial. A speedy trial does not mean a trial by eleventh-hour surprise.”
Prosecutors are keeping the heat on Milton. They filed a motion Monday seeking to require him to declare by Friday if he plans to use an “advice of counsel” defense — effectively blaming his attorneys for giving him bad advice in the case.
Editor’s note: Corrects voting rights of shares jointly owned by Milton and Russell.