[co-author: Danielle Marino]

In another special purpose acquisition company (“SPAC”) related enforcement action, on December 21, 2021, the US Securities and Exchange Commission (“SEC”) issued an order instituting cease-and-desist proceedings (“Order”) against a Nasdaq-listed electric vehicle truck manufacturing company that went public through a combination with a SPAC (“Company”). The Company’s initial business combination was consummated in June 2020. Shortly thereafter, an activist short-seller published a report charging that the Company’s prototype vehicle was rigged for a presentation to appear as if it was driving when it was merely rolling downhill, relying on gravity to do so.

The SEC and Nikola agreed to a $125 million civil money penalty for the alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 13a-15(a) thereunder and Section 17(a) of the Securities Act of 1933, as amended (“Securities Act”). The Order, which alleges that the Company misled investors through multiple misrepresentations and material omissions, is separate from a pending litigation and a pending Department of Justice matter involving the Company and its chief executive officer (“CEO”). Nikola did not admit any of the factual allegations or claims of statutory violations. The Order alleges a number of issues, including the following:

• From June 2020 to September 2020, the CEO engaged in a public relations campaign through social media posts and television/podcast appearances that were aimed at inflating and maintaining the Company’s stock price by making material misrepresentations to investors regarding the Company’s capabilities, technology, reservations, products and commercial prospects.
• The Company did not have adequate disclosure controls or procedures over the CEO’s social media posts and appearances.
• The CEO did not consult with anyone at the Company before publishing Company-related information. No one at the Company reviewed the CEO’s social media posts prior to publication and the Company only learned of the CEO’s interviews after they aired.
• No one at the Company corrected the CEO’s false statements after they were made. The Company did not design, implement or maintain disclosure controls or procedures to assess whether the information the CEO published via social media and television/podcast appearances was required to be disclosed in the Company’s Exchange Act reports. The Company did not have processes in place to ensure that information published by the CEO was communicated to the Company’s management with enough time to make decisions regarding these disclosures.

Most of these allegedly false and misleading statements were made by the CEO at the time the Company’s securities were being offered or sold pursuant to the Company’s registration statements relating to the public merger and to the relevant parties’ exercise of their post-merger registration rights. The focus on disclosure controls and procedures is an important reminder for any public company, and, perhaps more so for a target company contemplating a business combination with a SPAC. Similarly, the focus on social media statements made by or attributable to a company’s executive officer and the need for controls relating to these and aligning these with the company’s disclosures also is important for any public company.

A copy of the Order may be viewed here.

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