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Recognition…Eduardo Munoz/Reuters

The founder of electric truck maker Nikola Motor is on trial on fraud charges in a case seen as a cautionary tale about the dangers of investing in companies that aren’t yet generating revenue or delivering products.

Defendant Trevor Milton faces federal fraud and securities fraud charges stemming from allegations that he overdid the company’s technology, resulting in crushing losses for people who bought Nikola stock before it collapsed .

The trial, which is expected to last four or five weeks after jury selection began Monday, is taking place in the US District Court in Manhattan. Mr Milton has pleaded not guilty. He is represented by Marc Mukasey, who has represented the Trump Organization, and Edward Gallagher, a member of the Navy SEALs who has been indicted for war crimes in Iraq.

In 2020, Nikola was briefly worth more than Ford Motor in the stock market amid investor excitement about the upstart’s potential to become the Tesla of the truck industry.

Nikola’s shares fell sharply after reports that Mr. Milton had made false claims about Nikola’s technology, including producing a video of a truck being rolled down an incline to make it appear the company had a working prototype.

Mr. Milton soon resigned and Nikola continued to operate. It has started production of a battery-powered truck called the Tre at a factory in Arizona and has shipped about 50 to dealerships, a spokeswoman said. Nikola reported a net loss of $173 million on sales of $18 million for the three months ended June.

Last year, Nikola agreed to pay a $125 million civil penalty to settle a Securities and Exchange Commission fraud investigation. Nikola has not admitted any wrongdoing as part of the settlement.

Nikola shares recently traded around $5.40 after a record June 2020 close of nearly $66.

The case is also seen as an example of the risks of investing in Special Purpose Acquisition Corporations, or SPACs, companies that list before they have any assets. Nikola went public in 2020 by merging with a SPAC called VectoIQ Acquisition Corporation, avoiding some of the regulatory scrutiny typically applied to IPOs.

SPACs, once the rage on Wall Street, have lost much of their luster after many underperformed.

With the exception of Tesla, many electric vehicle manufacturers have struggled to ramp up production or gain significant market share. Their chances of success are diminishing as traditional car and truck manufacturers are late in introducing battery-powered products.

Recognition…Massimo Pinca / Reuters

In Nikola’s case, federal prosecutors allege that Mr. Milton promoted the stock in interviews and on social media to deliberately attract less experienced retail investors.

We “have to make sure we get individual investors on our side,” he said in an email to a Nikola board member a day before the company announced it was merging with VectoIQ, according to the charges against him.

Mr Milton made numerous false statements, according to the indictment, claiming Nikola had a fully working truck in 2016 when the vehicle was missing a transmission or engine. The indictment also states that Nikola posted videos online that appeared to show a prototype traveling down a road when it ran out of power and rolled down a hill.

Additionally, according to the 2020 indictment, Mr. Milton alleged that Nikola was developing a pickup truck, the Badger, “from the ground up” using his own technology. In fact, the government says the technology came from third parties, and a prototype Badger was built using parts from Ford F-150 pickups.

Mr Milton later claimed in a podcast interview that the Badger would defeat the F-150, prosecutors say.

He once said on Twitter that the badger would have a drinking fountain fed by the effluent from its hydrogen fuel cell. But Mr Milton had not discussed this feature with his engineers and later searched the internet to see if it was possible, according to the indictment. (Apparently it wasn’t.)

In addition to building trucks, Nikola planned to build a network of hydrogen refueling stations for fuel cell trucks. According to the indictment, Mr. Milton repeatedly claimed that Nikola had already built stations that could produce its own hydrogen cheaply.

“Nikola had never licensed, let alone built, nor produced a hydrogen production facility,” the indictment said.

Retail investors bore the brunt of the losses as Nikola shares plunged more than 40 percent in September 2020 following Mr Milton’s resignation, according to the indictment. Some institutional investors who “had more complete access to information about Nikola’s products and technology” exited earlier, prosecutors say. These investors “were able to sell their shares at a substantial profit.”

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