(Bloomberg) — Nikola Corp.’s chief executive officer told a jury he learned only after joining the company that its debut electric truck had neither a gas-powered turbine nor a fuel cell when founder Trevor Milton unveiled it.
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Milton, who is on trial for allegedly lying to investors about Nikola’s progress, was prone to exaggerate, CEO Mark Russell told the jurors Monday in federal court in Manhattan as he described the December 2016 unveiling.
Under questioning by the prosecution, Russell said he warned Milton that as the top executive he “should be careful” with his remarks and promises. He told the court that the two agreed Russell would come aboard, initially as president, only if he became chief executive when Nikola went public.
Russell joined the company in 2019 and was quickly promoted, just before Nikola’s 2020 listing. But in what he called a breach of his understanding with Milton, the founder became executive chairman, with final say over critical decisions.
After the listing, Russell testified, Milton “would say or do something that I would see and I would have concerns about,” and Russell would remind him that “his public statements would equate to a press release or securities filing.”
Despite Milton’s tendency toward hype, Russell thought his plans were the best he had seen in his career, he told the court, but the two had a fundamental difference of perspectives on Nikola’s future.
“He was very focused on the stock price day to day and was excited when it went up, and that concerned me,” Russell said. “I felt the most important thing we could do is build value for the long term.”
Russell testified that he and Chief Financial Officer Kim Brady advised Milton not to attend meetings with institutional investors. He also said Nikola “had no business” pursuing a clean-energy pickup truck, the Badger, and that he warned Milton it would take more money to develop than the company had raised at that point.
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In the end, as scrutiny of the company intensified, Milton resigned in September 2020, a little over three months after Nikola’s reverse merger.
The testimony of the outgoing CEO, who is due to step down himself by Jan. 1, came in the second week of Milton’s trial on securities and wire fraud charges. Accused of duping investors by making inoperable products look fully functional and of lying about the company’s technology and partnerships, Milton faces a maximum prison term of 25 years if convicted of the most serious charge.
The defense has called the case “a prosecution by distortion,” arguing Milton was just following the company’s marketing plan and never said anything he didn’t believe to be true.
Russell joined Nikola’s management team six months after stepping down as president and chief operating officer of steel products manufacturer and automotive supplier Worthington Industries Inc. Before he made the move, he told the jury on Monday, he met with Milton several times — hence his surprise at Milton’s leapfrogging the new CEO as executive chairman.
Russell, who announced his retirement last month, will be succeeded by industry veteran Michael Lohscheller, who has served as Nikola’s president since February.
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Despite the conflict between them, Russell and Milton are linked by a quirky circumstance. Milton holds Nikola stock partly through an entity called T&M Residual that he owns jointly with Russell. T&M holds about 9% of Nikola’s shares, according to data compiled by Bloomberg. Nikola has said Russell manages the T&M shares independently of the company.
Russell’s joining Nikola was something of a reunion with Milton. The two had worked together briefly at Worthington, which had acquired one of Milton’s earlier startups. Russell testified that Milton had resigned from Worthington, telling him that corporate life wasn’t for him and that he was going to start a venture to build the truck of the future. It was Russell’s understanding that Milton had been working on a natural-gas turbine truck, he told the jury, explaining that it was only upon joining Nikola that he discovered the debut semi was missing crucial parts.
At one point, prosecutors had Russell read out portions of an early 2020 email thread including Milton, then-director Jeff Ubben and current chairman Steve Girsky, who was also CEO of the special purpose acquisition company, or SPAC, that took Nikola public. In the exchange, Ubben and Girsky stressed to Milton the importance to investors of an independent board. Russell testified he joined them in that effort.
One problem they called out: It wouldn’t be a good look for Milton’s father, a director at the time, to remain on the board if Nikola went public.
Milton pushed back against changes to the board. In one email presented by the government, he emphasized one of his goals.
“The most important,” he said in the email, “is that I fully control the board at all times and have people that work well with my personality.”
The case is US v. Milton, 21-cr-478, US District Court, Southern District of New York (Manhattan).
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(Adds further testimony about Milton’s views in second section, background on T&M Residual in third and conflicts over the board in fourth.)
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