The Deep Dive

Fake it until you make it: Fraudulent founders

In recent years, stories of company founders committing fraud have proliferated in the news. By examining high-profile cases, the author identifies patterns and key takeaways for CFEs to better understand this seemingly all-too-common phenomenon.

In 2015, Trevor Milton founded green vehicle and energy company Nikola Corp., which garnered a big win in 2020 with the signing of a $2 billion General Motors partnership. Weeks later, investment-research firm Hindenburg Research reported that the company’s success was “an intricate fraud,” based on “an ocean of lies.” According to the report, to counter skepticism over the truck’s functionality, Nikola staged a video showing it at high speed. Hindenburg uncovered former employees’ texts, showing an elaborate ruse that involved filming the truck after being towed to the top of a hill and released. The report and numerous allegations resulted in Milton stepping down as board chair and chief executive officer (CEO) and his subsequent arrest. (See “ Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America,” by Hindenburg Research, Sept. 10, 2020.)

Last year, Manhattan federal court Judge Edgardo Ramos sentenced Milton to four years in prison and fined him $1 million stemming from his 2022 conviction for embellishing claims about Nikola’s production of zero-emission 18-wheel trucks. Because of Milton’s false statements, investors lost thousands of dollars. “Over the course of many months, you used your considerable social media skills to tout your company in ways that were materially false,” said Ramos. (See “Nikola Corp founder gets 4 years prison for exaggerating claims on zero-emission trucks,” by CBS/AP, Dec. 18, 2023.)

Recent news stories indicate that Milton’s fraud isn’t an anomaly. California-based Ozy Media, student-aid startup Frank, health care tech startup Theranos, mobile-app testing company HeadSpin, Chinese property giant Evergrande Group, cryptocurrency lender Celsius Network Limited, cryptocurrency exchange FTX, and Singapore-based Terraform Labs have all made headlines thanks to their founders’ fraudulent and allegedly fraudulent ways.

Here we’ll explore some of these high-profile cases for a better understanding of what’s behind this phenomenon of founders committing fraud. 

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