Nikola, the electric vehicle company that became a publicly traded company through a June 3, 2020 merger with a SPAC, has reached an agreement to pay $125 million to settle proceedings the SEC brought against the company relating to misrepresentations its former CEO Trevor Milton and the company made about the company’s EV production capabilities. In the settlement, the company neither admitted nor denied the SEC’s allegations. The SEC’s December 21, 2021 press release about the settlement can be found here. The SEC’s December 21, 2021 order instituting cease and desist proceedings against Nikola can be found here. The company’s December 21, 2021 press release about the settlement can be found here.



As noted here, in July 21, 2021, criminal charges and a separate SEC enforcement action were commenced against Milton, the former CEO. The SEC’s December 21, 2021 order instituted separate proceedings against Nikola itself. The order recites that “in anticipation of the institution of these proceedings,” Nikola submitted an offer of settlement, which the Commission accepted.


The December 21 order recites the Commission’s findings, which Nikola neither admitted nor denied. Among other things, the order states that “from at least March 2020 through September 2020, Milton’s statements in tweets and media appearances, individually and taken together, painted a picture of Nikola that diverged widely from its then-current reality.” Milton, the order states, “misled investors about, among other things, Nikola’s technological advancements, in-house production capabilities, reservation book, and financial outlook.”


Among other things, the order states that Milton “aggressive promoted Nikola,” including during the period when Nikola’s proposed merger with the SPAC was pending, as well as after the merger was completed. The order alleges that in connection with these promotion efforts, Milton made material misrepresentations to investors. The order further states that the company “did not have adequate disclosure controls or procedures regarding Milton’s social media use and media appearances.”


The order further alleges that, beyond the misrepresentations made by Milton, Nikola itself “made other material misrepresentations to investors” concerning certain features of Nikola’s vehicles, the company’s current and future production costs, and about the company’s contemplated partnership with General Motors.


The order recites that as a result of the misrepresentations of Milton and of the company itself, the company violated Sections 10(b) and 17(a) of the Securities Exchange Act of 1934. The order also states that in deciding to accept Nikola’s offer of settlement, the Commission took into account remedial acts the company had undertaken, noting in particular that the company had agreed to continue to cooperate with the Commission in connection with related judicial or administrative proceedings (undoubtedly a reference to the criminal action and SEC enforcement proceeding pending against Milton).


Finally, the order recites that the company has agreed to pay a civil money penalty to the SEC of $125 million, to be paid to the Commission in five installments over the course of two years. The settlement payment is to be deposited in a Fair Fund for the benefit of investors.


Interestingly, the order also recites that, “in order to preserve the deterrent effect of the civil penalty,” Nikola agrees that, in connection with any Related Investor Action, it “shall not argue that [Nikola] is entitled to, nor shall [Nikola] benefit by, offset or reduction of any award of compensatory damages by the amount of any part of [Nikola’s] payments of a civil penalty in this action.”


In its December 21, 2021 press release about the settlement, Nikola stated that it has “taken action to seek reimbursement from its founder, Trevor Milton, for costs and damages in connection with the government and regulatory investigations.”



The most attention-grabbing aspect of this settlement is its size. This settlement involves some serious money, which obviously speaks to the seriousness of the allegations. There are several other interesting features of this settlement, as well.


The first is that the SEC alleged not only misrepresentations against Milton, but also alleged misrepresentations by Nikola itself, apart from those attributed to Milton. The second is that the SEC alleged that many of the misrepresentations were made in Tweets and in other social media communications. These allegations are a reminder that social media communications can be the source of securities law liability. In that regard, it is worth highlighting the fact that the among the allegations the SEC made was the allegation that Nikola had insufficient controls or procedures for monitoring Milton’s social media use, which underscores that, given the risk of securities law liability arising from social media use, companies have responsibility to control and manage their executives’ social media communications.


Another feature of this settlement that is interesting to me is that the settlement involves a company that became publicly traded during the same time frame as the alleged misconduct through a merger with a SPAC. The fact that the alleged misrepresentations were made both before and after the SPAC merger highlights the risks involved with communications by companies that are going to go public through a SPAC merger or that have just become public as a result of a SPAC merger. These risks draw attention to a misperception that may be widespread that the rules and best practices that apply in connection with traditional IPOs don’t apply to SPAC transactions; the allegations here underscore the danger with this misperception. The fact that the alleged misrepresentations continued after the merger highlight concerns that at least some companies that go public through a SPAC merger may not be ready for the burdens, responsibilities, and obligations that go with a public listing.


The statement in Nikola’s press release about its intent to try to seek recoupment from Milton for its costs and expenses is also interesting. This effort is a claim against a former director and officer of the company. Though it is a kind of D&O claim, it is not one that the typical D&O insurance policy would cover, as it would represent the prototypical “entity vs. insured” claim for which coverage is precluded under the policy.


By the same token, the $125 million that Nikola has agreed to pay in the settlement likely would not be covered under the company’s D&O insurance policy; most D&O insurance policies exclude from the definition of insured loss “fines, penalties, and matters deemed uninsurable under applicable law.” However, the company’s defense costs (as well those of Milton) potentially could be covered under the company’s D&O insurance program.


One final note about the settlement amount, and that is that the $125 million settlement is by far the largest amount the SEC has recovered in a SPAC-related enforcement action. As noted here, in November 2021, the SEC agreed to accept $38.8 million to settle the enforcement action against Akazoo, which had also gone public through a SPAC merger. The $38.8 million Akazoo settlement amount “will be deemed satisfied by the company’s payment of $35 million to investors and victims of settlements in connection with several private class action lawsuits.”


Nikola’s settlement resolves the SEC proceedings against the company itself, but the separate criminal action and SEC proceeding against Milton goes on, as does the private civil action against the company and Milton. In other words, the various other proceedings against the company and its executives have much further to run.


It is probably worth adding the observation that the SEC’s action against Nikola may just be the first salvo as the SEC uses its enforcement authority to try to rein in perceived abuses in connection with SPAC-related companies and transactions.