Clifford Chance

Putting SPACs on the Spot – The case of Nikola Motor Company and its former CEO

August 9, 2021

SPACs have exploded in popularity as an alternative method for companies to raise funds and become publicly traded. The recent boom in SPACs has attracted a tremendous amount of attention, not just from the investing public, but also US regulators. On July 29, 2021, the US Department of Justice and the US Securities and Exchange Commission struck back at the SPAC phenomenon when they announced criminal and civil charges against Trevor Milton, the former CEO of the Nikola Motor Company. Nikola, which holds itself out as an innovative developer of alternative fuel trucks with zero emissions, went public by merging with a SPAC in June 2020. The charges filed in US federal court allege that Milton committed securities fraud by making false or misleading public statements about Nikola's products and technology to drum up investor demand in Nikola stock during the period leading up to and after its SPAC combination (known as the de-SPAC transaction). The case illustrates some of the regulatory enforcement and litigation risks surrounding the use of SPACs and demonstrates that mitigating these risks is important for parties to capitalize on the efficiencies offered by a de-SPAC transaction over a traditional IPO.

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