United States Securities and Exchange Commission v. Milton

Background

The Securities and Exchange Commission brought a civil action alleging that Trevor R. Milton violated federal securities laws by making false and misleading statements about Nikola Corporation’s products, technology, and business prospects. The opinion states that Milton founded Nikola in 2015 and served as its chief executive officer until June 2020, when the company began trading publicly on NASDAQ.

The civil case proceeded alongside a criminal case in which a grand jury indicted Milton for alleged securities fraud and wire fraud. Both cases involved the same alleged fraudulent scheme and substantially overlapping statements, facts, witnesses, and evidence. The criminal case did not involve the SEC’s allegation concerning the claimed lower cost of ownership of Nikola’s trucks.

Milton moved to dismiss the SEC’s case for improper venue or, alternatively, to transfer it under the federal venue-transfer statute. The United States moved to intervene in the civil case and to stay the civil proceeding while the criminal case was pending. The SEC took no position on the motion to stay.

Intervention and Stay

The court held that the United States could intervene as of right because it had a legally recognized interest in preventing civil discovery from interfering with the parallel criminal prosecution. The court reasoned that the SEC could not adequately protect the Government’s criminal-law interests because the SEC was not responsible for enforcing the criminal statutes involved. The court also stated that permissive intervention would be appropriate because the two cases shared common questions of law and fact.

The court then considered whether to stay the civil proceeding. It evaluated the overlap between the cases, the criminal case’s procedural status, the parties’ interests, the burden on Milton, judicial economy, and the public interest. The court found that the cases substantially overlapped, Milton had already been indicted, and his criminal trial was scheduled to begin on September 21, 2022. It concluded that allowing civil discovery to proceed could expand criminal discovery beyond its normal limits, reveal the defense before trial, and otherwise interfere with the criminal case.

The court also found that the stay would not prejudice Milton in the civil case. It explained that he would receive documents and other materials through criminal-case discovery, including materials from the SEC, Nikola, and third parties. The court further noted that staying depositions could benefit Milton because invoking the constitutional protection against self-incrimination in a civil case can allow a factfinder to draw a negative inference. The court concluded that the Government had shown sufficient grounds for a full stay of civil discovery and stayed the civil proceeding pending resolution of the criminal proceedings, subject to status reports from the Government.

Venue

The court denied Milton’s motion to dismiss for improper venue. It held that venue was proper because the SEC’s complaint alleged that important, nontrivial acts furthering the alleged securities-fraud scheme occurred in the Southern District of New York. Those acts included consummating the business combination with VectoIQ, a company headquartered in New York, which resulted in Nikola becoming publicly traded, and making allegedly false statements during a television appearance taped at the New York Stock Exchange. The court also stated that even if Milton made a media appearance from outside the district, a call or video call into the district could support venue.

The court also denied Milton’s motion to transfer venue to the District of Arizona or the District of Utah. It found that those districts could be proper venues, but Milton did not make the required clear and convincing showing that transfer would be more convenient for the parties and witnesses and in the interest of justice.

The court found that the witness-convenience factor was neutral because witnesses were located in the current and proposed districts, as well as elsewhere, and Milton had not shown that his witnesses would be unwilling to travel or could not testify by deposition. The convenience-of-the-parties factor did not favor transfer, and the court found that the location of physical evidence in Arizona did not justify transfer. The court also found the location of operative facts neutral because important events occurred both inside and outside New York, including the business combination and trading of Nikola stock on NASDAQ.

The court gave substantial deference to the SEC’s choice of forum because the securities laws gave the SEC broad discretion to choose a forum and the case had material connections to New York. The remaining factors were neutral or favored keeping the case in New York. In particular, judicial efficiency favored retaining the case because the related criminal proceedings were also taking place in the district.

Disposition

The Government’s motion to intervene and stay the civil proceeding was granted. Milton’s motion to dismiss for improper venue or transfer venue was denied. The Clerk was directed to terminate the pending motions, and the case was stayed pending resolution of the criminal proceedings, with the Government required to provide status reports beginning February 10, 2023.