What you need to know:
- The Securities and Exchange Commission (SEC) has filed an objection to Nikola Corporation’s Chapter 11 liquidation plan in U.S. Bankruptcy Court, claiming the plan tries to reclassify an $82 million civil penalty to a lower priority to free up funds for other creditors.
- Nikola agreed to pay a $125 million fine in 2021 for securities law violations, but has only paid $45 million so far.
- Nikola's debtors want to shift the financial burden to former CEO Trevor Milton, who resigned in 2020 amid fraud accusations.
- A hearing is set for September 15 to address the dispute.
The financial battle over the remnants of bankrupt Nikola Corporation are not over, as far as the federal government is concerned.
The Securities and Exchange Commission (SEC) filed an objection in the U.S. Bankruptcy Court District of Delaware on August 26 against Nikola Corporation's Chapter 11 Plan of Liquidation, claiming the plan aims to reclassify the SEC's outstanding civil penalty claim of $82 million in fines to a lower classification in order to leave additional money for unsecured creditors.
Nikola's debtors understandably prefer to shift this financial burden to Trevor Milton, Nikola's founder and former CEO who resigned in 2020 amid fraud accusations. He was recently pardoned by President Trump following his fraud conviction.
[Related: Nikola's creditors subpoena founder Trevor Milton]
The SEC's objection is separate from a settlement it reached with Nikola last year over a class action lawsuit involving misleading claims the company made while preparing to go public in 2020 through a special purpose acquisition company (SPAC) that raised over $700 million.
This time, the SEC argues Nikola's civil penalty claim should not be subordinated under Section 510(b) of the Bankruptcy Code. In other words, the debtors want to classify the SEC's claim as one for damages, which the SEC objects to.
Nikola's troubles
For context, Nikola agreed to a $125 million civil penalty in December 2021 over securities law violations. The penalty, the SEC points out, was supposed to be fully paid by December 2023 but only $45 million has been paid to date.
The agency clarified the fine has nothing to do with the actions of Nikola founder and former CEO Trevor Milton who, in 2023, was convicted and sentenced to four years in federal prison along with a $1 million fine after a New York jury found him guilty of securities and wire fraud.
Now a free man, Milton recently made a failed attempt to purchase at auction his former company's assets, including IPs, unsold trucks, and related materials.
[Related: Over $114M worth of Nikola hydrogen trucks, raw materials up for auction]
Luxury EV manufacturer Lucid Motors acquired Nikola's Coolidge, Arizona factory last April. Milton reportedly also made an unsuccessful bid for the facility.
Feds vs. Debtors
At its core, the case hinges on the SEC's authority to enforce its claims, which are backed by case law that affirms the agency's role in protecting the public interest.
As such, the debtors may not have a strong legal or factual grounds to subordinate or misclassify the SEC's claim, which puts the Chapter 11 plan's confirmation at risk.
A hearing between the parties has been scheduled for September 15.
