Hedge funds pile into Nikola short positions, as e-vehicle maker’s founder resigns amid fraud allegations

Nikola Motor Company

Hedge fund short sellers are circling Nikola Corporation, the electric vehicle and component manufacturer at the centre of fraud allegations, with the Nasdaq-listed firm’s share price tipped to tumble this week following executive chairman Trevor Milton’s sudden resignation on Sunday night (20 September).

Short-selling research specialist Hindenburg Research earlier this month branded Nikola an “intricate fraud built on dozens of lies over the course of its founder and executive chairman Trevor Milton’s career”, which triggered a slide in the Phoenix-headquartered firm’s shares.

Negative bets by hedge funds against Nikola have since surged in anticipation of further share falls.

New data from London-based equity research firm Ortex Analytics indicates short interest in Nikola has soared by 160 per cent since the allegations emerged almost two weeks ago.

Some 20 per cent of its freefloat shares are currently on loan, an increase of 61 per cent over seven days, Ortex said. The cost of borrowing Nikola shares has increased by almost 600 per cent over the same period.

“Our estimated short interest data, which provides a more up-to-date view than traditional exchange reported information, shows short positions are up significantly over the past seven days,” said Ortex co-founder Peter Hillerberg.

New York-based Hindenburg Research specialises in uncovering “hard-to-find information from atypical sources” across equities, credit, and derivatives markets.

Hindenburg alleges that the zero-emissions carmaker has made a number of misleading claims over its proprietary technology, including on battery technology and hydrogen fuel.

“We have gathered extensive evidence—including recorded phone calls, text messages, private emails and behind-the-scenes photographs—detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception at a public company, especially of this size,” Hindenburg said in a report dated 10 September.

Trevor Milton, who established the business in Salt Lake City in 2014, has denied any wrongdoing. In a statement posted on Twitter on Sunday night (20 September), Nikola’s billionaire founder and biggest shareholder voiced his support for the company, writing: “I intend to defend myself against false allegations leveled against me by outside detractors.”

The Securities and Exchange Commission and the Department of Justice are said to be now exploring Hindenburg’s claims that the USD20 billion company misled investors, according to media reports.

Ortex’s Peter Hillerberg said: “Regardless of the outcome, this is just another sign of the growing trend among the short-selling community to act as the fact-checkers of capitalism.”