‘I don’t see GM walking away’ from its deal with Nikola: Wolfpack Research Founder

Dan David, Wolfpack Research Founder, joins The Final Round to discuss the latest news on Nikola as it faces an investigation from the SEC due to allegations of fraud from Hindenburg Research and what all this could mean for the company that only recently saw an IPO in June.

Video Transcript

SEANA SMITH: Let's turn to a big mover to the downside today, and that, of course, is Nikola. Shares closing off just around 8%, and are now off 5% after hours. We have a report from the "Financial Times," now "Wall Street Journal" is also reporting this, saying that the DOJ is now drawing SEC reportedly examining Nikola over fraud allegations. Now these fraud allegations coming from short seller firm, Hindenburg Research. They doubled down on their claims today, saying that Nikola did not address many of the questions that they raised in the initial reports.

So for more on this and how exactly to read this, we want to bring in Dan David. He's with Wolfpack Research. Dan, it's interesting when you go through these different allegations from Hindenburg. Hindenburg saying today that Nikola's response had quote, "holes big enough to roll a truck through." First, let me get your thoughts just on Hindenburg's report and the fraud allegation. What did you think of it?

DAN DAVID: Well, we talked about this I guess we released a podcast yesterday that discussed what would happen. And we recorded that Friday. And we were really right about our predictions that the SEC will investigate. The DOJ could get involved. And I think the report was well-written honestly, and I truly don't say that about a great deal of short seller reports.

I think that there are some real issues here that have to be addressed both with past statements that may have led investors to come to this stock and see that this is going to be the next Tesla, setting aside the name, which is not very original. But I think that there are real problems there. I agree with Hindenburg's research statement today that they did not address many of the most important issues.

INES FERRE: Hi, Ines here. Talking about GM and the deal with Nikola, do you think it's a matter of days or weeks before GM perhaps pulls out of this deal? And what would happen then for Nikola?

DAN DAVID: Yeah, we've discussed that here in the office quite a few times. I don't necessarily think so. This was a great deal for GM. I mean, like really. So they get what, 11% of Nikola just for the opportunity to make their products. It's a terrible deal for Nikola, it always was. So I don't really see GM walking away from it necessarily. Maybe some of their other suppliers who we are now finding really make up what is Nikola.

Nikola claimed that they were innovative and that they were producing most of their products in-house, from their inverters to their batteries. And now we're finding that none of that is true, by their own admission. So some of those suppliers might be a bigger problem than GM. And the board could be a big problem. If you talk about Jeff Ubben, who is launching an ESG fund, and last I heard, ESG is social governance, right, and we have huge problems with social governance here and the CEO. And they're just, like you cannot not make comparisons to Elon Musk, except for the fact that Trevor Milton is not Elon Musk.

AKIKO FUJITA: Dan, when you look at the allegations that have been put forward, I wonder if we can bottom line it. I guess I'm trying to wonder if this is about Nikola exaggerating its timeline. In other words, having the technology and development, but overstating how far they've come. Or is it just a complete fraud, as you see it? That they don't have the technology at all in place. Because those are two very different distinctions.

DAN DAVID: I agree. So we're not talking about accounting fraud. And a lot of what I do is bring forth, especially in the China space, the pure accounting fraud. This is fictitious, it's fake. That's not what we're talking about. We're talking about possible securities regulations fraud here. And in my opinion, goes past hyperbole. When you're saying this is done, and we see trucks rolling off the line right now, except it's not done and trucks aren't rolling off the line right now.

So when he's in front of the DOJ, meaning Trevor Milton, or the SEC, he's going to explain what now means. It's going to be like Bill Clinton explaining what is, is. And I doubt he's going to be as good at it. This is going to be a problem for him. And there are many, many statements that pass that truck that, most investors thought was running and a test vehicle, only, it was rolling down a hill. That was extremely deceptive. And how does that square with corporate governance and people who think that their ESG-appropriate?

MYLES UDLAND: And Dan, kind of building off the corporate governance quickly, just on the SPAC angle here as well, obviously that's a huge part of what's happening in the market right now. I think there's already a lot of people looking skeptically at that movement of this is how you come to market, this is how you raise money. Does this imperil that trend if this kind of whole thing does indeed, go down?

DAN DAVID: I think it absolutely does leave a black mark on that trend. I mean, we were, our firm was part of like, you know, killing the reverse merger trend. And the SPAC trend is kind of a different way of end arounding an IPO. I think what the SPAC brings, is that if you believe in the SPAC investors, that they really know what they're doing and finding a vehicle to put into their SPAC, then that's what you're betting on more than anything else.

So I think it could really hurt them on a wholesale basis. And that's a good thing, by the way. Like we don't want the word SPAC to come out and everybody just throws their money at it because there's so much liquidity going around. We want more discerning information about these SPACs, and it should be fine.

SEANA SMITH: Dan, I just want to clarify for our viewers, I know you had a short position, I'm believe you had a short position on Nikola in the past. Where, do you still have that short position on it? Have you covered it? Where [AUDIO OUT]

DAN DAVID: Oh, geez, it was embarrassingly small. This report came out and we read it as fast as we could. And look, it was after, full disclosure, I had nothing to do with this report, I had nothing to do with Hindenburg. And seeing this report and the allegations and the reputation, quite frankly, of Hindenburg, which there are a lot of short sellers who I just don't respect, and I do respect Hindenburg's past research.

We put out a very small short position, I think under 10,000 shares, just to keep our interest. We have some of it. That's not why I'm talking about this. I'm talking about this because I think corporate governance is the biggest problem in capital markets today. It doesn't exist. The board of directors is supposed to protect shareholders. And I'm not just talking about Nikola here, I'm talking about all companies. And we've got to get back to it. They've got to start protecting us.

SEANA SMITH: All right, Dan David of Wolfpack Research, we appreciate you taking the time to join us today.

DAN DAVID: Thank you, Seana, it was great seeing you again.