Yesterday, a federal judge in Manhattan sentenced Nikola founder Trevor Milton to four years in prison for lying to his investors about his electric truck startup’s prospects and progress. Last year, a jury found Milton guilty on one count of securities fraud and two counts of wire fraud.
Prosecutors had asked for an 11-year prison term and a $5 million fine. While Milton will be required to pay a $1 million fine, plus an amount of restitution to be determined later, the judge in the case, Edgardo Ramos, said he took to heart the letters he'd received from Milton’s friends and family attesting to his character. “There were people I’ve sentenced whose offenses were substantially less, but who looked their victims in the eye as they took their last dollar,” Ramos said. Nevertheless, he added, “real people were hurt by your actions.”
How much people were hurt by Milton’s alleged fabrications was a matter of contention in the trial. Prosecutors claimed retail investors lost $660 million as a result of Milton’s false statements — comparable to the $600 million lost by venture capital firms and other bigwigs in the Theranos bust but far less than the $16 billion-worth of online currency that collapsed along with the crypto exchange FTX, of which only $7.3 billion has been recovered so far.
Nikola went public as part of 2020’s SPAC boom, but shortly after, unnamed insiders told Bloomberg News that Milton had been exaggerating what his prototypes could do. At the 2016 unveiling of the Nikola One, a purportedly hydrogen-powered big rig, Milton told onlookers, “We’re going to try to keep people from driving off. This thing fully functions and works.” But people familiar with the set-up for the event told Bloomberg reporters that the engine was missing key components — including a hydrogen fuel cell.
“I never deceived anyone,” Milton told Bloomberg. “There wasn’t a fuel cell in the truck. We never claimed there was,” although the model in question had “H2 Zero Emission Hydrogen Electric” emblazoned on its side. At the unveiling, Milton said deliveries of the Nikola One would begin in 2020; by 2020, the company still hadn’t published production plans.
To be fair, scaling an electric vehicle company is extremely difficult. As my colleague Robinson Meyer described it, there comes a put in every EV company's development cycle when “it faces a hold-your-breath moment where its high costs can overwhelm its meager production.” This, he said, is the “valley of death,” which claimed electric bus-maker Proterra earlier this year.
Perhaps these difficulties contributed to Ramos’s apparent leniency in sentencing, although a quick look at his past cases shows that he wasn’t exaggerating about his past cases. In 2018, he sentenced a 73-year-old found guilty of running a $220 million payday lending scheme to 10 years in prison, and a couple months ago he sentenced the co-founder of a fake cryptocurrency to 20 years in prison and ordered him to forfeit $300 million. The coup de grâce, though, seems to be the case of a Florida woman named Peaches Stergo who pleaded guilty to defrauding a 87-year-old Holocaust survivor of $2.8 million. Ramos also sentenced her to four years in prison, plus restitution.
