The Justice Department has joined U.S. securities regulators in examining allegations that electric-truck startup
misled investors by making exaggerated claims about its technology, according to people familiar with the matter.
The Justice Department’s inquiry is being handled by the Manhattan U.S. attorney’s office, working in concert with the Securities and Exchange Commission, which has initiated its own examination of the claims about Nikola, the people said.
Specifically, federal prosecutors are probing allegations that Nikola, a maker of electric and hydrogen-powered semi-trucks that listed publicly in June, misrepresented progress it made in developing key technology core to releasing new models, the people said.
Spokesmen for the SEC and Manhattan U.S. attorney’s office declined to comment.
Nikola declined to comment on whether it had been contacted by the Manhattan U.S. attorney’s office. “When we have something to disclose, we will,” a company spokeswoman said.
Last week, short seller Hindenburg Research published a 67-page report that called the Phoenix-based startup an “intricate fraud.” The firm stands to gain if Nikola’s shares fall, and Nikola has issued separate responses since then disputing the report.
Nikola had contacted the SEC itself on Friday regarding the short seller’s report, the company said, and it welcomes the regulator’s involvement.
The SEC review is in its early stages, according to one of the people, while it couldn’t be determined how advanced federal prosecutors are in their investigation.
Both federal inquiries may not produce any formal allegations of wrongdoing. The SEC has the authority to bring civil charges, while prosecutors could bring federal criminal charges. The Financial Times first reported the DOJ’s inquiry Tuesday afternoon. Bloomberg News first reported the SEC’s involvement Monday evening.
The Hindenburg report accuses Nikola and its executive chair, Trevor Milton, of making false statements and overstating the development of the company’s technology on several occasions. Since the report came out Thursday, Nikola has lost more than 20% of its valuation, including a drop of 8% Tuesday.
Nikola has called the Hindenburg report false and motivated by a short seller with a financial interest in hurting Nikola’s share price, particularly in the wake of a deal struck last week with
General Motors Co.
News of the GM deal sent Nikola’s stock price up more than 40%.
Mr. Milton tweeted Friday that he wouldn’t comment on the short seller’s allegations under the advice of counsel.
GM Chief Executive Mary Barra said the auto maker remains committed to the Nikola deal and defended the company’s due diligence.
“Our company has worked with a lot of different partners,” she said. “We’re a very capable team that has done the appropriate diligence.”
The Hindenburg claims don’t involve GM. Under its deal with Nikola, GM is largely serving as a supplier and contract manufacturer, agreeing to provide batteries and fuel-cell technology for future Nikola vehicles, while building the company’s planned pickup truck at a GM factory. In exchange for its services, GM said it would receive an 11% stake in Nikola.
The short seller said a 2018 promotional video showing a prototype of a Nikola semi-truck traveling down the road was staged and that the truck was rolling down a hill rather than propelling itself.
Nikola, in its response Monday, said the truck shown had functional batteries and other parts, but said it wasn’t propelled on its own. Nikola said the video, titled as showing the truck “in motion,” never stated the prototype was driving under its own power. Nikola also has said its newer trucks are able to be driven.
Mr. Milton has increased his stake in Nikola, buying more than 41,000 shares, for more than $1.2 million, securities filings showed Monday. The CEO now owns nearly a quarter of the company’s shares outstanding, according to FactSet.
On Tuesday, Hindenburg said Nikola’s response didn’t adequately address most of the allegations.
Nikola has retained Kirkland & Ellis LLP as legal counsel to represent it in the matter. The company has also hired crisis-management firm Joele Frank, Wilkinson Brimmer Katcher.
Nikola came on investors’ radar in early June when its shares began trading after completing a merger with VectoIQ Acquisition Corp., a so-called special-purpose acquisition company run by former GM executive Steve Girsky. Nikola shares surged in its first week of trading, at one point briefly surpassing the valuation of
Ford Motor Co.
The early surge in Nikola’s stock price highlighted an investor frenzy for electric-vehicle startups. The success of pioneer
Elon Musk’s electric-car company that in recent months surpassed huge incumbents to become the world’s most valuable car company, has helped spark interest in Nikola and other upstarts looking for growth in the nascent technology.
Nikola hasn’t sold any trucks yet. The company is targeting the commercial-trucking space through a zero-emissions semi-truck that would run on batteries and hydrogen fuel cells, which mix hydrogen and oxygen to create electrical power.
Nikola’s business plan is to lease heavy trucks and the refueling infrastructure necessary to support them to corporate customers. The company also wants to enter the lucrative market for large pickup trucks with a vehicle called the Badger.
have pledged to reduce the carbon emissions of their logistics operations and have been placing large orders for zero-emission trucks and vans.
Nikola has taken orders for commercial customers as it works to get its trucks on the road. In 2018, the company said it had received an order from Anheuser-Busch InBev S.A. for 800 trucks.
The first of those trucks was originally supposed to be delivered later this year, but Nikola said Monday that it now expects to deliver its first prototype to Anheuser-Busch by the end of 2021, before a broader rollout in 2023.
Nikola said in August that it had won another order for 2,500 garbage trucks from refuse giant
Republic Services Inc.
—Rebecca Davis O’Brien, Mike Colias and
contributed to this article.
Corrections & Amplifications
The Financial Times earlier reported the Justice Department’s inquiry on Tuesday, while Bloomberg News reported the SEC’s involvement Monday. A previous version of the story credited the wrong outlet for the SEC news. (Corrected on Tuesday, Sept. 15)
Write to Ben Foldy at Ben.Foldy@wsj.com
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