Putting SPACs on the Spot - The Case of Nikola Motor Company and its Former CEO - Case Study

Oct 22, 2026

Putting SPACs on the Spot examines the SPAC boom as an alternative path to becoming publicly traded and highlights the regulatory and litigation risks revealed by the Nikola Motor Company matter. Following Nikola’s de-SPAC transaction, U.S. DOJ and SEC charges alleged securities fraud by Trevor Milton through allegedly false or misleading public statements about products and technology. The discussion explains SPAC mechanics, investor protections, safe harbor differences versus IPOs, and scrutiny triggered by the lack of a traditional IPO quiet period.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages7

Reading Time18 min

AccessFree to download

What Are SPACs?

SPAC structure and rationale

Regulatory scrutiny and enforcement risk

Criticisms and investor disclosure concerns

Safe harbor and projections vs IPOs

Quiet period differences and promotion risk

PUTTING SPACS ON THE SPOT – THE CASE OF NIKOLA MOTOR COMPANY AND ITS FORMER CEO SPACs (Special Purpose Acquisition Companies) 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 (DOJ) and the US Securities and Exchange Commission (SEC) 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. WHAT ARE SPACS? SPACs are publicly listed corporate shells whose raison d'être is to combine with a privately held target company so that the target's stock may be publicly traded. SPACs have no underlying business operations and raise capital through an initial public offering (IPO) for use in acquiring a target company that is unidentified at the time of the IPO. A SPAC must identify and complete a business combination with a target company within a specified timeframe—usually within two years of the IPO—or face liquidation and the repayment of the IPO proceeds. Target shareholders may be cashed out, in whole or in part, by funds raised in the business combination. In the current SPAC market, however, it is typical that target shareholders only receive new shares in the combined company. There were more than 380 SPAC IPOs in the first seven months of 2021 alone – an increase of over 1.5 times the same figure for all of 2020.1 Proponents of SPACs argue that the structure allows for simplified valuation discussions between the SPAC sponsor and the target as compared to an IPO process. SPACs also may offer greater valuation predictability because the target can secure a valuation earlier in the process compared to an IPO—i.e. , at the signing of the business combination agreement between the SPAC and the target, rather than at the pricing of an IPO. SPACs have also surged in popularity because they potentially allow private companies to go public faster than a traditional IPO and with fewer restrictions and customary hurdles. For this very same reason, deSPAC transactions have attracted scrutiny from US regulators. Critics of SPACs argue that their looser requirements weaken the guardrails of the traditional IPO process, exposing the investing public to heightened risk from weak disclosures or even false statements.2 Notably, because the de-SPAC transaction is a business combination and not a public listing, the registration statement/proxies filed in connection with such transactions may include the target's financial projections, which are currently generally protected under a statutory safe harbor for forward-looking statements. This is in marked contrast to IPOs, where companies avoid making projections because the aforementioned safe harbor specifically does not cover false statements in IPO registration statements.3 For many venture companies with little to no historical earnings, the ability to make financial projections is a key feature of SPACs.4 According to one commentator, the SPAC rules give sponsors and target compan

FAQs

What happened in the Nikola Motor Company SPAC case?

In 2021, U.S. DOJ and the SEC announced criminal and civil charges against Trevor Milton, Nikola’s former CEO. The allegations claim securities fraud tied to false or misleading public statements about Nikola’s products and technology.

How does a SPAC work in general?

A SPAC is a publicly listed corporate shell that raises capital via an IPO to combine with an unidentified private target company within a specified timeframe. If no combination is completed in time, the SPAC faces liquidation and repayment of IPO proceeds.

Why do critics say SPACs can increase investor risk?

Critics argue SPACs weaken traditional IPO guardrails, enabling heightened risk from weak disclosures or even false statements. They also note that de-SPAC transactions may include projections protected by safe harbor rules.

How do SPACs differ from traditional IPOs regarding promotion and the quiet period?

De-SPAC transactions are not subject to the traditional IPO quiet period mandated under Section 5 of the Securities Act. Without that restriction, SPAC participants can promote the stock through mainstream and social media while the deal process unfolds.

Oct 22, 2026

Uploaded by Taylor Morgan