Electric Vehicle Company Settles SEC Case – Corporate/Commercial Law

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Electric Vehicle Company Settles SEC Case

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In another special purpose acquisition company
(“SPAC”) related enforcement action, on December 21,
2021, the US Securities and Exchange Commission (“SEC”)
issued an order instituting cease-and-desist proceedings
(“Order”) against a Nasdaq-listed electric vehicle truck
manufacturing company that went public through a combination with a
SPAC (“Company”). The Company’s initial business
combination was consummated in June 2020. Shortly thereafter, an
activist short-seller published a report charging that the
Company’s prototype vehicle was rigged for a presentation to
appear as if it was driving when it was merely rolling downhill,
relying on gravity to do so.

The SEC and Nikola agreed to a $125 million civil money penalty
for the alleged violations of Section 10(b) of the Securities
Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and
13a-15(a) thereunder and Section 17(a) of the Securities Act of
1933, as amended (“Securities Act”). The Order, which
alleges that the Company misled investors through multiple
misrepresentations and material omissions, is separate from a
pending litigation and a pending Department of Justice matter
involving the Company and its chief executive officer
(“CEO”). Nikola did not admit any of the factual
allegations or claims of statutory violations. The Order alleges a
number of issues, including the following:

  • From June 2020 to September 2020, the CEO engaged in a public
    relations campaign through social media posts and
    television/podcast appearances that were aimed at inflating and
    maintaining the Company’s stock price by making material
    misrepresentations to investors regarding the Company’s
    capabilities, technology, reservations, products and commercial

  • The Company did not have adequate disclosure controls or
    procedures over the CEO’s social media posts and

  • The CEO did not consult with anyone at the Company before
    publishing Company-related information. No one at the Company
    reviewed the CEO’s social media posts prior to publication and
    the Company only learned of the CEO’s interviews after they

  • No one at the Company corrected the CEO’s false statements
    after they were made. The Company did not design, implement or
    maintain disclosure controls or procedures to assess whether the
    information the CEO published via social media and
    television/podcast appearances was required to be disclosed in the
    Company’s Exchange Act reports. The Company did not have
    processes in place to ensure that information published by the CEO
    was communicated to the Company’s management with enough time
    to make decisions regarding these disclosures.

Most of these allegedly false and misleading statements were
made by the CEO at the time the Company’s securities were being
offered or sold pursuant to the Company’s registration
statements relating to the public merger and to the relevant
parties’ exercise of their post-merger registration rights. The
focus on disclosure controls and procedures is an important
reminder for any public company, and, perhaps more so for a target
company contemplating a business combination with a SPAC.
Similarly, the focus on social media statements made by or
attributable to a company’s executive officer and the need for
controls relating to these and aligning these with the
company’s disclosures also is important for any public

A copy of the Order may be viewed here.

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