🎧 As Nikola’s stock soared in 2020, an unlikely group of whistleblowers and short sellers teamed up to find the cracks in Trevor Milton’s stories about the company. Listen to Episode 4 of Bad Bets Season 2: The Unraveling of Trevor Milton.
After it began trading in 2020, Nikola was a hot stock—and Trevor Milton was a newly minted billionaire. But in the background, people from Trevor’s past were finding each other and sharing their experiences. In this episode, we talk to the unlikely group of whistleblowers and short sellers who teamed up to find the cracks in Nikola’s facade and expose them to the world.
Ben Foldy: In the video, Trevor bends his head toward the camera to show the words emblazoned on his baseball hat, Trevor with trolls. And then he starts reading specific comments from the people he's calling trolls like this one, from a person who doesn't seem to think much of Trevor's resume before Nikola.
Ben Foldy: It's kind of wild to watch the top executive of a multi-billion dollar company talking about taking $150 bet from a stranger online about going to jail. But what will become a problem for Trevor was that some of the people who doubted his bona fides, some of them were not just internet strangers. Some of them had actually worked with him.
Mark Pugsley: We actually have a regional office of the SEC in Salt Lake, which is unusual for a city of our size. We're not that big of a city, but there's so much fraud and it goes way back. By the way, there's a history of fraud in Utah that goes back to the penny stock craze. There were just, for whatever reason, there was a lot of it.
Darren Brooks: So I took the 15 grand and then I see the headline that he'd purchased a ranch in Utah for $32 million and now I'm really, really angry. Ben Foldy: Mike led Mark through his entire winding history with Trevor Milton, the CNG conversions, the Swift semi truck in his driveway, the buddy deals. Mark the lawyer asked Mike if he had evidence to back up his story. Mike being the archivist he is said, of course he did.Ben Foldy: That's Miranda Shrout, Mike's wife.
Ben Foldy: Even the panels of the garage door were covered in Mike's precise and tiny handwriting, notes, diagrams, timelines. It's a to-do list of how to take down Nikola. And that's your Friday. I noticed a quote from the New Testament scrolled on a tabletop between all the Milton miscellanea, God hath not appointed us to rath. That June, Mike says he started spending day and night in his garage. It even took over a vacation that his wife Miranda had planned.
Ben Foldy: Nikola Insider. In July of 2020, Mike found a Twitter account that was anonymously posting photos and accusations about what had happened when Nikola showed its first truck the Nikola One, back in 2016. Can you read kind of the first tweet? Ben Foldy: So I guess you find these tweets. Does it kind of feel like you found the guy you need the perfect-
Ben Foldy: Whoever Nikola Insider was, they were taking a risk, publicly calling out Trevor Milton. Trevor seemed to relish taking on the people he thought were out to get him. And Nikola had a lot of money to spend if it ever decided to sue critics of the company. Mike read out other messages where Nikola Insider told Mike they were afraid of Trevor figuring out their identity.
Ben Foldy: Paul Lackey. The same Paul Lackey we told you about last episode, who worked on the original systems of the Nikola One and watched in astonishment as Trevor told the world the inoperable truck was a fully functioning hydrogen semi. Paul explained why he'd started tweeting as Nikola Insider. In the three years since he stopped working with Nikola, he said he'd tried to share his story of the Nikola One reveal.
Ben Foldy: The day after those tweets from Trevor, Paul started tweeting as Nikola Insider and a month later he got that first DM from Mike Shrout. And when he learned about the SEC's whistleblower program, he decided to join the team. So Paul started sending Mike and the lawyer Mark, the materials he had been saving. Documents, emails, photos from his time working with Nikola. They were on the phone constantly, but never met one another in person.
Ben Foldy: Compared to the other short sellers I've come across, Nate's not a big talker, but he doesn't need to be for companies to fear him and his track record. When his firm Hindenberg Research publishes a report on a company that's shorting, I've seen that company's stock go down within seconds, a sign that some traders have algorithms that will sell a company's shares the second Hindenberg tells the world it's short on a stock.
Ben Foldy: Nate says, he'd seen this type of executive before, and in his experience it doesn't end well. Ben Foldy: Eventually Nate decided to drop long investing and started short selling full-time. But he quickly found being a short seller means risking complete financial annihilation. For starters, one bad bet can wreck you completely. Part of it is just math. A stock can only go to zero capping a short trades upside at a hundred percent. But on the other hand, it can go up forever. Meaning you can lose a lot more money than you bet if you're not careful.
Ben Foldy: The lawyer thought Nate had something special, a real talent for finding frauds that could pay off. So the lawyer agreed to keep representing him, and Nate kept at it. By the summer of 2020, he'd cobbled together a small firm comprising himself and four fellow researchers. The days of getting eviction notices were behind him. And that's when he got a call from another whistleblower lawyer, this one in Utah, Mark Pugsley.
Ben Foldy: So Nate decided to start digging. As an activist short seller, his strategy was to do a deep dive investigation on Trevor Milton and Nikola, short the stock, and then to help drive down the stock price, Hindenberg would put out a public report. Joining Nate was a team of researchers who specialized in digging through documents and finding sources to make the strongest report they can.
Ben Foldy: Other members of the Hindenberg team were digging into Trevor Milton's story as well. And they say the more they dug, the more they found. Trevor had been an extremely prolific talker with much of that talking, taking place in recorded interviews. Ben Foldy: The Hindenberg team says they combed through many, many interviews and also all the posts they could find on Trevor's social media. And there were a lot.
Mark Pugsley: He just said, I cannot believe this guy lies about everything. And that became kind of the foundation of the short report, a list of lies. Ben Foldy: But that was just a small thing, a white lie of little consequence. A lot of Trevor's statements though, were about things that played a big role in how Nikola was valued by investors. And if they weren't true, it could really hurt Nikola's share price, exactly what Hindenberg was after. And item number two, proprietary technology was one of those things. Trevor said several times that Nikola had breakthrough technologies that were the envy of the electric vehicle world.
Ben Foldy: Trevor was saying that Nikola's inverter technology was so good, other automakers wanted it from them. Paul Lackey, aka Nikola Insider, said this caught his attention. Ben Foldy: In the video, you see what looks to be a big metal box with a complicated array of heavy duty cables snaking out of it. In between those cables, Paul noticed what looked to be a piece of olive green tape.
Ben Foldy: It's a remarkable claim. Trevor just said Nikola had cut the cost of hydrogen by more than 80%, making diesel obsolete. And when Hindenburg looked into this claim, it first looked at who inside Nikola was responsible for running this part of the business.