January 13, 2022
A shareholder of battery-electric truck manufacturer Nikola Corp. sued 10 of its officers and directors in Delaware’s Court of Chancery for allegedly allowing the company’s founder to carry out a criminal fraud leading up to and following its $3.3 billion merger with VectoIQ Acquisition Corp. In a 140-page derivative complaint filed late Wednesday, shareholder Barbara Rhodes alleged that insiders of the Phoenix-based company stood by while its founder and former CEO and Executive Chairman Trevor Milton intentionally misled investors and overstated the company’s worth, artificially inflating the valuation of the company to as high as $28.77 billion post-merger.
Milton was indicted on charges of securities fraud and wire fraud about a year after the merger.
“Milton’s actions were nothing more than an old fashioned ‘pump and dump’ scheme designed to enrich Milton and Nikola’s insiders,” the complaint alleged. “The Nikola insiders, including its board members, knowingly went along for the ride.”
The pre- and post-merger boards breached their fiduciary duties by allowing Milton and Nikola to engage in illegal conduct, aiding and abetting Milton’s materially false and misleading statements to stockholders, failing to control Milton from making false statements after the merger, and repeatedly ignoring signs of illegal conduct, the complaint says.
The complaint alleges that the company insiders also profited from Milton’s scheme, and seeks damages for breaches of fiduciary duty, aiding and abetting, and unjust enrichment, among other claims.
Nikola’s board members allowed Milton to resign “with virtually no financial consequences” after his conduct came under investigation by the Department of Justice, the U.S. Securities Exchange Commission and other authorities, the complaint says.
In December, Nikola reached a settlement with the U.S. Securities and Exchange Commission, agreeing to pay a $125 million penalty to settle allegations that Milton deceived investors about the company’s ability to build electric- and hydrogen-powered trucks.
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Barbara Rhodes is represented by Julie Goldsmith Reiser, Richard A. Speirs and Benjamin F. Jackson of Cohen Milstein Sellers & Toll PLLC and Peter B. Andrews, Craig J. Springer, Andrew J. Peach and David M. Sborz of Andrews & Springer LLC.
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