'unlawful takeover scheme'.
Nikola Corp. is suing its former CEO Trevor Milton and Embr Motors over their plan to help Milton regain control of the Phoenix-based electric truck company.
Nikola alleges Milton violated securities laws and accuses Embr founders Dave Sparks and Cole Cannon of trademark infringement and breach of contract in a “comprehensive campaign” to take over the company’s board of directors, according to a lawsuit filed late last week in U.S. District Court for the District of Arizona. Embr was allegedly used to generate public attention and garner investor votes.
Sparks is a star of reality show “Diesel Brothers,” and Cannon is an attorney and owner of Cannon Law Group.
The allegations stem from a deal that Nikola struck in 2023 with Embr, which purchased intellectual property and prototypes for the Badger electric pickup truck, Powersport off-road and Waverunner watercraft vehicles.
Nikola inked the deal with Embr under the agreement that Milton would not be involved with the Badger or Powersport assets. In addition, Embr was to refrain from using Nikola’s name and trademarks.
“The agreement specifically states that Mr. Milton was to have zero involvement with Embr or the assets it had purchased as the company felt strongly that he had caused enough reputational, financial, and operational damage to Nikola,” Nikola’s attorneys wrote in the lawsuit filed on March 28.
Embr was not immediately available for comment on the suit.
YouTube video part of the case
On Feb. 18, Sparks announced on his YouTube channel that he plans to bring the Badger to market. In a video titled “The Nikola Badger is Real and I Own Them,” Sparks claims that he and Cannon negotiated the deal to acquire the Badger assets from Nikola for “tens of millions” of dollars.
Sparks, a longtime friend of Milton, said he was provided stock in exchange for promoting the Badger. He also claims there “were a lot of issues” with Milton’s fraud trial and that Nikola had been “growing and thriving” under his leadership.
In December 2020, Milton was sentenced to four years in federal prison for defrauding investors about Nikola's electric vehicle technology to inflate the company's stock price. Milton is currently out on $100 million bail pending an appeal of his case, according to the lawsuit.
Nikola’s attorneys allege Embr breached its agreement with the company by publicly affiliating itself with Milton.
In addition, court filings show that Nikola is accusing Sparks of using its trademarks and referencing its name more than 50 times in the video, causing confusion among viewers about the relationship between the two companies.
“Without authorization, defendants have used the Nikola marks to market and draw public attention to Embr, a new company with zero brand recognition, and to further the financial interests of themselves and their longtime friend, Trevor Milton,” Nikola’s attorneys wrote.
In the video, Sparks announces that he’s working with Milton and Cannon to take over Nikola’s board, explaining their goal is to “bring Nikola back to its former glory,” referencing when Milton controlled the company, according to the lawsuit.
“While corporate board takeover attempts are not, by themselves, unlawful, this one is because these defendants have willfully and intentionally committed a number of wrongful acts, including violations of the securities laws, trademark infringement, multiple torts and multiple breaches of a contract between Nikola and defendant Embr Motors, Inc.,” Nikola's attorneys wrote in the lawsuit.
Milton's board nominations
Earlier this year, M&M Residual — a business entity controlled by Milton — announced its intention to nominate five directors — including Sparks and Cannon — at Nikola’s 2024 annual shareholders meeting. Nikola rejected the nominations in February, the Business Journal previously reported.
Nikola is alleging the proxy materials for Milton’s board nominations contain false and misleading information and violate securities laws.
The Feb. 20 proxy materials indicated that M&M Residual held 51 million shares of Nikola. The company claims Milton began moving shares from M&M Residual to 14 other accounts under his control to thwart Nikola’s efforts to collect a $165 million judgement from him.
By March 14, M&M Residual held about 4 million shares, according to the lawsuit.
“It is clear via social media and SEC filings that these provisions of the agreement were not adhered to, and as a result legal action is being taken against Embr, Mr. Cannon and Mr. Sparks, as well as Mr. Milton,” Nikola wrote in a March 29 statement. “The Nikola team will aggressively pursue its rights and continue our mission to decarbonize the trucking industry.”
Milton stepped down from the company in September 2020 amid the fallout following a report by short seller Hindenburg Research that claimed Nikola was an “intricate fraud built on dozens of lies.”
In February 2020, Nikola unveiled the Badger, an fuel-cell electric truck intended to rival Tesla's Cybertruck. The truck garnered a $2 billion commitment from General Motors, which later ended its partnership with Nikola amid fallout from the Hindenburg Research report. Nikola refunded customer deposits for the Badger and shelved the program.
Nikola is seeking unspecified damages and attorney's fees. The company is also requesting removal of Sparks and Cannon from their board nominations and references to Nikola on Embr's website and social media accounts, among other things. |
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