On Wednesday in the Eastern District of New York, Arab Salem filed a class-action complaint against “zero-emissions transportation” company Nikola Corporation for securities fraud alleging that the company falsely misrepresented its capabilities in an effort to inflate the public’s perception, which affected the company’s stock price.
According to the complaint, the company’s securities began to be publicly traded in June “after the execution of a reverse merger with VectoIQ Acquisition Corp.” During the class period, between June 4 and September 9, the plaintiff proffered that the defendants “made materially false and misleading statements regarding the Company’s business, operations and compliance policies.” In particular, Salem alleged that Nikola failed to disclose or made false or misleading statements in regards to the company’s “financial, technological, and operational profile,” which “were intended to, and did, present a materially false image of the Company’s growth and success, thereby artificially inflating the Company’s stock price”; these alleged misrepresentations “were foreseeably likely to subject the Company to enhanced regulatory scrutiny and/or enforcement, along with reputational harm when the truth came to light”; consequently, the plaintiff claimed that Nikola’s “public statements were materially false and misleading at all relevant times.”
Some of the purported false statements or misrepresentations include that Nikola overstated its capabilities, by claiming it designs all essential components in-house. However, according to the complaint, they “appear to simply be buying or licensing them from third-parties.” The plaintiff also alleged the company overstated its hydrogen capabilities, which caused Nikola to falsely claim it could lower the cost of hydrogen fuel. Nikola also allegedly “staged a video” promoting its truck; the company purportedly “had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”
The complaint also alleged the company’s “much-touted multi-billion dollar order book is filled with fluff”; overstating its performance, partnership and market share. Finally, the complaint said Trevor Milton, the founder and Executive Chairman of Nikola, “ensured he is not going down with the ship” because he “cashed out $70 million around the IPO and amended his share lock-up from 1-year to 180 days.”
According to the complaint, an article from Hindenburg Research published on September 10, claimed that the company was “an intricate fraud built on dozen of lies.” Afterward, Nikola stock price fell by 11.33% the equivalent of $4.80 per share to close at $37.57. A few days later, there were reports that the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) were investigating Nikola, causing the stocks to fall another $0.17 per share to $32.83 at the close of September 15, 2020, which was a decrease of 8.27%. As a result, the complaint stated that the plaintiff and the class have suffered significant losses and damages. The plaintiff averred that the stock prices are artificially inflated as a result of these false statements or misrepresentations.
The defendants are accused of violating Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The plaintiff has sought to maintain and certify this as a class, an award for damages, pre- and post-judgment interest, and other relief. The plaintiff is represented by Pomerantz LLP and The Schall Law Firm.