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Tuesday, December 6, 2022 | 08:00 am

Founder of Nikola Trevor Milton Was Found Guilty of Three Charges of Fraud

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Founder of Nikola Trevor Milton Was Found Guilty of Three Charges of Fraud

Trevor Milton, the founder and former executive chairman of Nikola, has been found guilty of three counts of fraud for misleading the electric vehicle company’s investors about its business and technology.

In total, he was found guilty of one count of securities fraud and two counts of wire fraud. He was acquitted on one charge of securities fraud. His sentencing has been scheduled for January 27th. He faces up to 20 years in prison.

Milton was indicted by a federal grand jury on the charges last year, with prosecutors citing numerous alleged lies, including many made on Twitter, in podcast interviews, and in other media appearances. Prosecutors alleged he had lied about “nearly all aspects of the business” in an effort to boost the stock of the EV maker.

The SEC began investigating the company in 2020after Hindenburg Research publicly accused Nikola of staging an “elaborate ruse” to mislead the public about the status of its electric semi, Nikola One. While the company had published a video purporting to show the truck “cruising on a road at a high rate of speed,” Hindenburg said the truck had actually been “towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.” The company ultimately paid $125 million to settle civil charges with the SEC in 2021.

During the trial, Milton’s defense lawyer argued that the video was merely “special effects” and that “it’s certainly not a crime to use special effects.” But prosecutors raised several other false claims by Milton, who was extremely active on Twitter. According to The Times, prosecutors said Milton also lied about having “binding contracts with trucking companies” that in reality were cancelable reservations for vehicles. Prosecutors also cited Milton’s claims about making “green hydrogen” when the company had not yet produced any.

Joseph Sullivan, who used to serve as Uber’s security chief, was convicted of federal charges for hiding a 2016 data breach from authorities. According to The New York Times, a jury in a San Francisco federal court has found Sullivan guilty of obstructing the FTC’s ongoing investigation into Uber at the time for another breach that occurred in 2014. He was also found guilty of actively hiding a felony from authorities. Sullivan’s case believed to be the first time an executive has faced criminal charges over a hack, revolves around how the former executive dealt with the bad actors who infiltrated Uber’s Amazon server and demanded $100,000 from the company.

The hackers got in touch with Uber shortly after Sullivan sat for a deposition with the FTC for its investigation of the 2014 cybersecurity incident. They told him they found a security vulnerability that allowed them to download the personal data of 600,000 drivers and additional information linked to 57 million drivers and passengers. As The Washington Post reports, it was revealed later on that the hackers found a digital key that they used to get into Uber’s Amazon account. There, they found an unencrypted backup collection of personal data on passengers and drivers.

Sullivan pointed them to the company’s bug bounty program, which had a max payout of $10,000. The hackers wanted at least $100,000, however, and threatened to release the data they’d stolen if Uber didn’t pay up. The former security chief paid them the amount they demanded in bitcoin and made it appear as if they’d been paid under the bug bounty program – an action reportedly sanctioned by then Uber chief executive Travis Kalanick. He also tracked them down and made them sign nondisclosure agreements.

The former executive’s camp argued that Sullivan felt Uber’s user data was protected after the hackers signed an NDA. “Mr. Sullivan believed that their customers’ data was safe and that this was not some incident that needed to be reported. There was no coverup and there was no obstruction,” his lawyer David Angeli said. But prosecutors disagreed and viewed his use of NDAs as a way to cover up the incident. Further, they stressed that the incident shouldn’t have been qualified for a payout under the bug bounty program, which is meant to reward friendly security researchers when the bad actors threatened to release users’ personal information if they didn’t get paid the amount they wanted.

In the end, the jury agreed with the prosecutors that Sullivan should have notified the FTC about the data breach. It wasn’t until Dara Khosrowshahi took over as CEO that the FTC was informed of the event. A sentence hasn’t been handed down yet, but Sullivan now faces five years in prison for obstruction and up to three more years for failing to report a felony. 

The US Securities and Exchange Commission has filed a lawsuit against two former MoviePass executives. In a federal complaint seen by Bloomberg, the agency accused Theodore Farnsworth and Mitch Lowe on Monday of misleading investors about the viability of the company’s $9.95 per month business model.

Farnsworth was the chief executive officer of Helios and Matheson Analytics, the parent company of MoviePass between 2017 and 2020. Lowe led MoviePass between 2016 and its collapse in 2020. The SEC alleges Farnsworth and Lowe “intentionally” and “repeatedly” shared false information.

“Faced with debilitating negative cash flows – rather than tell the public the truth – Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’s heavy users from using the service, and falsely and misleadingly informed the public that usage had declined naturally or due to measures the company had employed to combat subscribers’ purported violations of MoviePass’s terms and conditions of service,” the complaint states.

In addition to financial penalties, the SEC is seeking to prevent both Farnsworth and Lowe from serving in director or officer positions in any company that’s required to register securities with the agency. The SEC’s lawsuit also names former MoviePass business development executive Khalid Item as a defendant. Item allegedly pocketed $310,000 by submitting false invoices to the company. Last year, Helios and Matheson, Farnsworth, and Lowe settled a lawsuit from the Federal Trade Commission related to allegations they mislead customers and failed to protect user’s personal information.

“The complaint concerns matters subject to an investigation that the company and other news outlets publicly disclosed nearly three years ago, and Mr. Farnsworth’s legal team will maintain the challenge to this complaint,” Chris Bond, a spokesperson for Ted Farnsworth told Bloomberg. “Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders.”

The suit comes as a new version of MoviePass attempts to reestablish itself under the leadership of cofounder Stacy Spikes. The company recently launched a beta service in Chicago, Dallas, and Kansas City, offering packages that start at $10 per month.

“Today the SEC filed a civil complaint against our client, Mitch Lowe, in the U.S. District Court. The allegations in the complaint relate to Mitch’s time at MoviePass, particularly 2017-2018,” Kobre & Kim, the firm representing Lowe, said in a statement to Engadget. “We disagree with the SEC’s characterization of Mitch’s conduct, including allegations about statements made about the progress in building MoviePass. Bringing new commercial concepts to the market can be disruptive and uneven. Mitch remains proud of what was accomplished at MoviePass and intends to work within the legal process to resolve these allegations.”

Lawyers for Elon Musk have officially asked to cancel the upcoming trial with Twitter, as the two sides attempt to negotiate a deal. In a new court filing, Musk’s lawyers asked the judge to call off the trial, which is currently scheduled to begin on October 17th.

Earlier this week, Musk’s camp had proposed proceeding with the original deal, to buy Twitter at $54.20 a share, contingent on Musk’s financing going through and the adjournment of the trial. Twitter responded that it was also intent on closing the deal.

While that certainly seemed to put the two sides a lot closer to an agreement, it wasn’t an immediate end to the litigation. The New York Times has since reported that Twitter does not want to call off the trial until a deal is finalized and the company’s shareholders have been paid. There are likely other sticking points, too. Bloomberg reported Tuesday that “Musk is also seeking to reserve his rights to file a fraud suit over his claims the platform’s executives misled him and other investors about the number of spam and robot accounts.”

In their latest filing, Musk’s lawyers confirm the disagreement over the trial, writing that Twitter is now endangering the deal. “Twitter will not take yes for an answer,” Musk’s lawyers write. “Astonishingly, they have insisted on proceeding with this litigation, recklessly putting the deal at risk and gambling with their stockholders’ interests. Instead of allowing the parties to turn their focus to securing the Debt Financing necessary to consummate the transaction and preparing for a transition of the business, the parties will instead remain distracted by completing discovery and an unnecessary trial.”

Notably, the filing comes on the same day Musk was scheduled to be deposed in the case. The deposition was delayed – for the second time. Musk’s lawyers say they expect the deal could close “on or around October 28.”

Update 6 PM ET: The judge in the case has stayed the trial until October 28th, the date Musk’s lawyers said they expected to close. “If the transaction does not close by 5 p.m. on October 28, 2022, the parties are instructed to contact me by email that evening to obtain November 2022 trial dates,” Kathaleen St. Jude McCormick wrote. 

Boeing has agreed to pay $200 million to settle charges from the Securities and Exchange Commission. The agency found that Boeing made “materially misleading public statements” related to crashes involving its 737 Max aircraft. The company’s former CEO Dennis Muilenburg will also pay $1 million to settle charges. The SEC alleged that Boeing and Muilenburg violated the antifraud provisions of federal securities laws. They neither admitted to nor denied the agency’s findings.

The SEC alleged that, after the first crash in October 2018, which caused the death of 189 people, Boeing and Muilenburg were aware that the anti-stall Maneuvering Characteristics Augmentation System (MCAS) posed an ongoing safety concern. However, the company told the public that the 737 Max was “as safe as any airplane that has ever flown the skies.” 

After the second crash in March 2019, in which 157 people died, the company and Muilenburg claimed “there were no slips or gaps in the certification process with respect to MCAS, despite being aware of contrary information,” the SEC said in a statement. Following the crashes, all 737 Max planes were grounded for over 18 months.

“There are no words to describe the tragic loss of life brought about by these two airplane crashes,” SEC Chair Gary Gensler said. “In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets. The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation. They misled investors by providing assurances about the safety of the 737 Max, despite knowing about serious safety concerns.”

The settlement “fully resolves the SEC’s previously disclosed inquiry into matters relating to the 737 Max accidents,” Boeing told CNN. “Today’s settlement is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 Max accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders.”

Boeing previously reached a $2.5 billion settlement with the Department of Justice to avoid criminal charges. Last year, a grand jury indicted Boeing’s former chief technical pilot, Mark A. Forkner, on fraud charges. Forkner, the only Boeing employee who has faced a criminal indictment in relation to the crashes, was accused of deceiving the FAA’s Aircraft Evaluation Group during the evaluation and certification of the 737 Max. Following a four-day trial earlier this year, a jury found Forkner not guilty.

After 23 years in prison, Adnan Syed is a free man. Baltimore prosecutors on Tuesday announced they were dropping charges against the 41-year-old and subject of the hit podcast Serial, reports The New York Times. Prior to his release in September, Syed had been serving a life sentence for the 1999 murder of his former girlfriend Hae Min Lee.

The decision comes after a judge last month overturned Syed’s prison sentence on the recommendation of prosecutors, who said the state was no longer confident of the conviction. At that point, prosecutors had 30 days to decide whether to move forward with a new trial or drop charges. Where the case of Lee’s murder goes from here is hard to say. In September, following a nearly yearlong investigation, the state said it had found two possible “alternative suspects.” However, the public identity of those individuals is not known yet.

After 23 years in prison, Adnan Syed is a free man. Baltimore prosecutors on Tuesday announced they were dropping charges against the 41-year-old and subject of the hit podcast Serial, reports The New York Times. Prior to his release in September, Syed had been serving a life sentence for the 1999 murder of his former girlfriend Hae Min Lee.

The decision comes after a judge last month overturned Syed’s prison sentence on the recommendation of prosecutors, who said the state was no longer confident of the conviction. At that point, prosecutors had 30 days to decide whether to move forward with a new trial or drop charges. Where the case of Lee’s murder goes from here is hard to say. In September, following a nearly yearlong investigation, the state said it had found two possible “alternative suspects.” However, the public identity of those individuals is not known yet.

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