Current Cases

Nikola Corp. Derivative Litigation

Status Current Case

Practice area Securities Litigation & Investor Protection

Court Court of Chancery, State of Delaware

Case number 2022-0023-KSJM


Cohen Milstein and Andrews & Springer represent shareholders in a shareholder derivative action against Trevor Milton (“Milton”), the founder and former CEO and Executive Chairman of Nikola Corporation (NKLA – NASDAQ), a zero-emissions vehicle startup company that purports to be a leading manufacturer of heavy-duty commercial electric vehicles and energy solutions, and certain other current and former directors and officers of Nikola.

Plaintiffs allege that Milton engaged in an ongoing criminal fraud involving the dissemination of materially false and misleading statements to Nikola stockholders and the public, with the knowing assistance and aid of three disloyal, self-interested, and interconnected Boards of Directors: Nikola’s Boards of Directors both before and after its June 2020 Merger with VectoIQ (the “Legacy Nikola Board” and the “Post-Merger Nikola Board,” respectively), and VectoIQ’s Board of Directors at the time of the Merger (the “VectoIQ Board”), who in turn breached their fiduciary duties to the company.

Important Rulings

  • On April 9, 2024, Chancellor Kathleen St. J. McCormick of the Delaware Court of Chancery denied the majority of Defendants’ motion to dismiss, allowing shareholders’ claims of insider trading, securities fraud, and merger-related breaches to move forward.

Case Background

Beginning no later than November 2019, until at least September 20, 2020, Nikola’s founder, largest stockholder and CEO, Milton, in breach of his fiduciary duties, engaged in an ongoing criminal fraud involving the dissemination of materially false and misleading statements to stockholders and the public through a variety of methods. Using social media platforms, investor presentations, podcasts and SEC filings, Milton repeatedly overstated and misrepresented Nikola’s business, technology and expected financial performance. When the fraudulent scheme commenced, Nikola was privately-held, in need of financing, and seeking to become a publicly traded entity, which would allow Milton and Nikola’s insiders to monetize and potentially cash-out their illiquid Nikola stock. Milton’s statements drove Nikola’s pre-Merger valuation to approximately $3 billion dollars. After Nikola’s merger with VectoIQ, a publicly traded company, and as a result of a continued barrage of false statements, the valuation rose to as high as $28.77 billion.

In short, Milton’s actions were nothing more than an old fashioned “pump and dump” scheme designed to enrich Milton and Nikola’s insiders. The Nikola insiders, including its Board members, knowingly went along for the ride. Each of them either personally held substantial amounts of Nikola stock or were principals in entities that invested heavily in Nikola at its early stage.

Despite having been on notice of Milton’s fraudulent practices prior to the Merger, the Post-Merger Nikola Board, which included all the Legacy Nikola Board members, breached their fiduciary duties (i) by allowing Milton and Nikola to engage in illegal conduct; (ii) by aiding and abetting Milton’s materially false and misleading statements to stockholders; (iii) by failing to implement a system of controls designed to ensure Milton’s public statements regarding Nikola after the Merger were truthful; (iv) by repeatedly ignoring signs of his illegal conduct; and in by engaging in improper insider trading.

Ultimately, allegations of Milton’s fraudulent conduct were confirmed in July 2021 when he was indicted by the DOJ for securities fraud and wire fraud with similar charges leveled by the SEC.

Further, in breach of their fiduciary duties to the Company and reflecting their interestedness in considering a demand, the Board permitted Milton to resign with virtually no financial consequences while under investigation by the DOJ, the SEC, the Company and others. Milton has since sold off hundreds of millions of dollars of his personal holdings of Nikola stock with no repercussions—yet the Company is expected to pay $125 million to settle an investigation with the SEC related to Milton’s fraudulent scheme.

Milton’s scheme could not have been accomplished without the substantial assistance provided by VectoIQ and its Board. VectoIQ was a publicly traded Special Acquisition Corporation or “SPAC” formed in 2018. VectoIQ’s Board willingly provided Nikola with a vehicle to go public and for Nikola’s insiders to accumulate massive wealth, while at the same time generating enormous profits for VectoIQ’s founders and sponsors. Through the issuance of a misleading proxy statement regarding the Merger resulting from an inadequate due diligence into Nikola and Milton, the VectoIQ Board aided and abetted Milton’s criminal activities while realizing outsize profits on their investments in VectoIQ and Nikola.

Defendants’ activities have caused enormous harm to Nikola. In addition to the $125 million payment to the SEC, the Company has already spent and will continue to spend tens of millions on investigations and has enormous exposure to damages in a pending securities class action. The harm to Nikola’s reputation and loss of goodwill is substantial. Further, Defendants have been unjustly enriched through the illegal scheme perpetrated by Milton.

Case name: Rhodes v. Trevor Milton, et al., Case No. 2022-0023-KSJM (Del. Ch.)