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Tags: Financial Markets | amrock | bexar | navigant | nikola | sec

Innovation Needs Honesty to Thrive

Innovation Needs Honesty to Thrive


Jared Whitley By Tuesday, 15 December 2020 12:06 PM Current | Bio | Archive

We will never know the true cost of the lost innovation and economic growth inflicted by nefarious actors who fluff their valuation figures or just outright lie. News travels fast, fake news travels faster.

But investors deserve reliable information.

Phoenix-based Nikola Corp. has been making headlines in recent months as the company undergoes investigation from the SEC regarding claims that the electric-vehicle designer may have deceived investors about its business prospects.

Promised to rival Elon Musk’s industry disrupter Tesla, Nikola founder and, now former executive chairman Trevor Milton promised hydrogen power and battery innovations created through proprietary technologies.

Predictably, investor enthusiasm was rampant and the company was even able to secure a $2 billion procurement and manufacturing partnership with General Motors in September that pushed share prices to $79.

Nikola’s outlook was rosy.

But a report from Hindenburg Research called out Milton and his company alleged fraudulent activities over nearly 15 years to trick investors with false promises about its prototypes — sending shockwaves across investors who were misled by Nikola’s claims to manipulate the stock price.

The exaggerated or false claims that Nikola Corp. is accused of making — if found to be factual – are not victimless crimes. Investors on all levels have lost big. The company’s stock (NASDAQ: NKLA) has lost more than 50 percent of its value since the September report was published.

The hordes of new, often younger investors without such deep pockets who are known to seek visionary green-tech companies, just like Nikola claimed to be, have fallen victim. For example, investing app Robinhood, with an average user age of 33, reported 3 million new users in just four months this year.

These harms are compounded when fraud on this (alleged) scale results in far more wearily disbursed venture capital, especially among the innovators responsible for real disruptive technologies.

These actions also dissuade collaboration between companies out of fear of being misled. Nikola Corp. relied heavily on partnerships; however, they could not hold up their end of the bargain.

As Navigant Research Sam Abuelsamid told The New York Times," "It certainly seems like Nikola really inherently doesn’t have any technology of note. They have a vision and have been going around setting up partnerships with companies that do have the technology and are trying to pull it all together."

Alas, this is not the first high-profile case in which a company did not live up to its promises.

In 2018, tech startup HouseCanary, which offers real estate valuation technology, won a staggering $740 million judgment in a Bexar County, Texas, countersuit filed over the misappropriation of alleged trade secrets.

Title Source, now known as Amrock, originally sued HouseCanary after it neglected to deliver the innovative appraisal-oriented mobile app that HouseCanary was being paid $5 million annually to build.

Soon after the trial, former HouseCanary employees came forward with additional revelations. Among them, Anthony Roveda, a former HouseCanary employee, offered sworn testimony that, "It was evident to me that during the time I worked at HouseCanary there was never a working version of the app . . .  There wasn’t anything to steal."

He also testified, "In my experience, HouseCanary leadership, and the CEO Jeremy Sicklick in particular, was focused more on enhancing the image of the company and on fundraising than on creating a working product."

The whistleblowers also testified that there was collusion between HouseCanary executives and someone at Title Source, which led some to suggest that the dispute had been a HouseCanary set up from the onset.

One cannot help but draw parallels between the allegations facing Nikola and those made of HouseCanary.

Fortunately, due to legal errors made in the original trial, the Texas Court of Appeals for the Fourth Circuit in San Antonio reversed HouseCanary’s $740 million award, ruling that the various alleged breaches occurred after HouseCanary had voluntarily disclosed its claimed trade secrets.

This was a pivotal step in the right direction and sets practical precedent for future intellectual property disputes — which seem to be getting more contentious as technology advances.

What happens now?

A three-justice panel updated its June opinion two months later – amending its reversal and requiring HouseCanary to either request that the trial court enter a judgment on the contract claim jury verdict or retry all claims against Amrock.

The tech sector itself and the many more who invest in it will be watching these cases and others like it closely. American innovation — and the broader economy — relies on partnerships between companies for success and growth; this helps to create jobs, develop better products for consumers and the environment, and bolsters the U.S.’ competitive position in the global market.

Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. Read Jared Whitley's reports — More Here.

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American innovation, and the broader economy, relies on partnerships between companies for success and growth; this helps to create jobs.
amrock, bexar, navigant, nikola, sec
Tuesday, 15 December 2020 12:06 PM
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