I really think that false statements made by commercial entities should be prosecuted as fraud. It's one thing to engage in vague sales talk like 'the new SuperTech Blinkenlights will turbocharge your actuarial skydiving research!!', but when you're making claims of having actually existing technology (which you may not be ready or willing to patent, but do want to raise money with), the public has an interest in protecting itself from fraud.
Perhaps there should be some requirement to pay for independent professional witnesses, sort of like observers who validate Guinness world records as having met some (negotiable) standard of existing in the real world while being bound not to comment on the specifics of how it was achieved.
> "Nikola never stated its truck was driving under its own propulsion in the video," Nikola wrote. "Nikola described this third-party video on the Company’s social media as 'In Motion.' It was never described as 'under its own propulsion' or 'powertrain driven.'
Or you just look through the communications surrounding this video during discovery to see if there was a pattern establishing intent to mislead investors.
There are 'reasonable person' laws all over. Maybe there should be one to apply here. Like 'unlimited* data' plans technically have fine print redefining the word unlimited, but a reasonable person will see the ad across the street and be misled.
Also even if it wasn't fine print, it's still comically illegal. Imagine someone saying "Our cereal cures cancer! Where cancer is defined as 'hunger'."
They also stated that investors at the time were aware of the limitations. If that is true, then who would have been defrauded?
I’m not trying to defend them, but at that stage of the (private) company, if they were honest with investors then is there an issue? Where is that line? If they weren’t honest with them, then that’s a whole other story.
(And I’m not sure you can assume they were in fact honest with investors.)
let's see - "Nikola Motor Company stock ticker is NKLA. It went public on the NASDAQ on June 4, 2020." (random google search)
but the article indicates "When Nikola Motor Company founder Trevor Milton unveiled a prototype of the Nikola One truck in December 2016, he portrayed it as fully functional."
Investors are supposed to conduct their own due diligence which could include talking to the engineers or setting up a demo under mutually agreed conditions at which point the difference between "in motion" and "driving" would be uncovered.
Context matters too. No reasonable person would expect a company to post a promotional video of their vehicle "in motion" just to show off that it has wheels that can roll.
> contributing to global warming is securities fraud, and sexual harassment by executives is securities fraud, and customer data breaches are securities fraud, and mistreating killer whales is securities fraud, and whatever else you’ve got. Securities fraud is a universal regulatory regime; anything bad that is done by or happens to a public company is also securities fraud, and it is often easier to punish the bad thing as securities fraud than it is to regulate it directly.
The problem is, who was defrauded? The investors, I guess, but if they sue then they can only collect money from the company that they own anyway. It's not obvious that's a money-gaining proposition.
The investors could bring a derivative suit against the officers of the corporation. They wouldnt be collecting from the corporation, but from the officers of the corporation (https://en.wikipedia.org/wiki/Derivative_suit).
Not a money-gaining proposition, but that's why some CEOs should go to jail. We need to create an environment where fraud like this isn't profitable or sustainable.
Fyi, fraud is notoriously hard to convict on and even when large frauds are successfully prosecuted, the penalties are quite small. The SEC also can't be seen to be "hammering entrepreneurs" or let its conviction rates drop. So why get involved?
They can, of course, be prosecuted for fraud if someone brings a valid complaint against them. Is there any evidence that any of their investors were tricked into giving them money or were made false promises?
I hope you realize that is simplistic. Is the bar for enforcing such laws very high and do many often slip under it? Yes. And yet prosecutions under such laws are happening constantly.
To build real motivation for start-up founders not to commit fraud, they would have to be persecuted even when they succeed. But now, if you push through and eventually prevail, everybody wins and nobody cares; may be some former competitors who tried to play it right, but now they're history and have no leverage. Who's going to go after Facebook for their previous shenanigans? Unlike Nikola, their early investors are quite happy.
And as long as that's the case, people crazy and risky enough to become startup founders will never be persuated not to do it.
Compared to AI "Full Self-Driving Capability" isn't any more implausible. Yet we don't call those AI companies fraud.
This is how Tesla marketing Model 3's Autopilot. Marketing speak for sure, but lie?
"Autopilot enables your car to steer, accelerate and brake automatically within its lane. Full Self-Driving Capability introduces additional features and improves existing functionality to make your car more capable over time"
I think this is the rub. It depends on your definition of “capable.” While technically, it’s “capable” in the sense all Teslas have sensors they claim are enough, it’s not “capable” of using those sensors for self driving if there’s no code for it.
> I really think that false statements made by commercial entities should be prosecuted as fraud.
In Germany, we have the "Gesetz gegen den unlauteren Wettbewerb", roughly translated as "law against unfair competition". It's a pretty old piece of law (1896), but unlike other laws in Germany this one is held reasonably up to date.
Stuff like we see here would be flat out prosecutable by any competitor.
If Matt Levine weren't on break from his Bloomberg column, you can bet this would be an entry in his file "Everything is Securities Fraud". It wouldn't even be a controversial one.
This is called due diligence, and it's on the investor to perform their own due diligence. For a product that isn't commercially available to consumers yet, due diligence should be enough.
In the case of something like Theranos, I thoroughly agree. Oversight of a commercially available product, especially one with health implications, is definitely necessary. Although it seems even these systems failed in the Theranos case.
There is actually the legal test of a Reasonable Person.
If they say they're going to sell trucks, and they present a truck doing truck things (moving), most people would assume it's a complete truck as portrayed. An empty shell is just fraud in the court, hopefully.
Agreed, but a reasonable person would also ask: "how well does it drive up hills?", "what are it's miles per charge?", etc. at which point the truth is uncovered.
It's not a good look, but you also shouldn't be investing based on what amounts to a commercial. This should be another stain for the company and another warning sign for investors, but we don't need a law against misleading promo videos because almost all are short on information and high on emotion. It's the investor's job to get the information behind the video.
While it's true that funders should perform due diligence, diligence for fundraising still relies on an underlying need for the entity raising funds to be truthful.
As an example, if you apply for a bank loan and falsify the application, you can still be charged with fraud and go to jail even though the bank potentially could have discovered the falsehood by hiring an investigator before issuing the loan.
The harm caused by this kind of deception is not only to the investors (or to the deceivers, when they are found out). It also increases the general background level of distrust, which harms the honest.
Perhaps there should be some requirement to pay for independent professional witnesses, sort of like observers who validate Guinness world records as having met some (negotiable) standard of existing in the real world while being bound not to comment on the specifics of how it was achieved.