(Bloomberg) — The CEO of Nikola Corp. told the jury he only learned after joining the company that its debut electric truck had neither a gas turbine nor a fuel cell when founder Trevor Milton revealed it.
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Milton, who is on trial for allegedly lying to investors about Nikola’s progress, was prone to exaggeration, CEO Mark Russell told jurors Monday in federal court in Manhattan as he described the December 2016 revelation.
Under questioning from the prosecution, Russell said he warned Milton that as a top executive he “should be careful” with his remarks and promises. He told the court the two agreed Russell would come on board, initially as chairman, only if he became chief executive when Nicola went public.
Russell joined the company in 2019 and was quickly promoted, just ahead of Nikola’s induction in 2020. But in what he called a breach of his understanding with Milton, the founder became executive chairman, with the final say on critical decisions.
After the filing, Russell testified, Milton would “say or do something that I would see and have concerns about,” and Russell would remind him that “his public statements would amount to a press release or a securities filing.” .
Despite Milton’s penchant for hype, Russell believed his designs were the best he had seen in his career, he told the court, but the two had a fundamental difference in outlook for Nikola’s future.
“He was very focused on the stock price every day and he was excited when it went up, and that concerned me,” Russell said. “I felt the most important thing we could do was build value for the long term.”
Russell testified that he and CFO Kim Brady advised Milton not to attend meetings with institutional investors. He also said Nicola “had no business” pursuing a clean energy truck, the Badger, and that he warned Milton it would need more money to grow 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, just over three months after the Nikola reverse merger.
Testimony from the outgoing CEO, who is himself set to step down by Jan. 1, came in the second week of Milton’s trial on securities and fraud charges. Accused of defrauding investors by making non-working products appear fully functional and lying about the company’s technology and partnerships, Milton faces a maximum sentence of 25 years in prison if convicted of the most serious charge.
The defense called the case a “tort prosecution,” arguing that Milton was simply following the company’s marketing plan and never said anything he didn’t believe was true.
Russell joined Nicola’s management team six months after he stepped down as chairman and CEO of steel products maker and auto supplier Worthington Industries Inc. surprise at Milton’s jump to the new CEO as executive chairman.
Russell, who announced his retirement last month, will be succeeded by industry veteran Michael Loessler, who has served as Nicola’s president since February.
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Despite the conflict between them, Russell and Milton are connected by a strange circumstance. Milton owns the Nikola stock in part through an entity called T&M Residual that he jointly owns with Russell. T&M owns about 9% of Nikola’s shares, according to data compiled by Bloomberg. Nicola said Russell manages the T&M shares independently of the company.
Russell’s joining Nicholas was something of a reunion with Milton. The two had briefly worked together at Worthington, which had acquired one of Milton’s older startups. Russell testified that Milton had resigned from Worthington, telling him that corporate life was not for him and that he was going to start a business to build the truck of the future. Russell understood that Milton was working on a gas turbine truck, he told the jury, explaining that it was only when he joined Nicola that he discovered crucial parts were missing from the semi-final debut.
At one point, prosecutors had Russell read portions of an email thread in early 2020 involving Milton, then-director Jeff Ubben and current chairman Steve Girsky, who was also chief executive of the special purpose acquisition company, or SPAC , who publicized Nikola. In the exchange, Ubben and Girsky stressed to Milton the importance of an independent board for investors. Russell testified that he joined them in this effort.
One problem they called out: It wouldn’t be good for Milton’s father, a director at the time, to stay on the board if Nicola went public.
Milton pushed back against the board changes. In an email released by the government, he highlighted one of his goals.
“Most importantly,” he said in the email, “is that I am in full control of the board at all times and have people who 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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(He adds further testimony about Milton’s views in the second section, background on the T&M Residual in the third, and board conflicts in the fourth.)
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