Fortune - USA (2020-12)

that the Nikola One was not built to “drive on

its own propulsion.”

The damage was swift. The stock cratered,

and investor lawsuits began to mount. In a

regulatory filing in November, the company

revealed that the Justice Department had is-

sued grand jury subpoenas against Nikola and

Milton, and that the Securities and Exchange

Commission was investigating whether Nikola

had misinformed investors. “We have incurred

significant expenses as a result of the regulato-

ry and legal matters relating to the Hindenburg

Report,” Nikola disclosed. (Nikola declined

multiple requests to answer questions on the

matter. Reached through a spokesperson, Mil-

ton, who called the report “false and deceptive”

in September, would not comment further.)

Since the report dropped, Nikola’s stock

has fallen 30%, and Milton has resigned. But

one cohort has walked away the better from

the truck wreck. As of mid-November, short-

sellers—Anderson among them—had earned

$263 million in mark-to-market profits from

Nikola’s plunge, according to S3 Partners, a

firm that tracks short activity. And they clearly

expect to earn more: More than a third of all

Nikola shares outstanding were held by shorts.

B

ULL MARKETS, the saying

goes, ignore bad news. And if

you set aside the black-swan

pandemic-driven crash of early

2020, U.S. stock indexes have

been in bull mode since the fi-

nancial crisis, almost 12 years ago. Still, there’s

a small but influential force in activist investing

that is not only paying attention to bad news

but also promulgating and profiting from it.

Anderson’s firm is part of a cadre who

identify themselves by many names—some

flashy (“short activists”); some self-righteous

(“whistleblowing short-sellers”); some de-

ceptively banal (“activist researchers”). These

investors research targets suspected of shady

behavior, then expose them and short them.

They share gimlet-eyed DNA with finan-

ciers large and small who’ve done the same—

from Jim Chanos, who shorted Enron while

warning about its accounting skulduggery, to

would demonstrate the kind of razzmatazz the company was

engineering to sustain its hype. Anderson’s problem: How could he

prove the video was a ruse?

A self-described “obsessive digger,” Anderson used a technique

that’s common to the open-source investigations in the Internet’s

most skeptical corners. He slowed the YouTube video down, frame

by frame, and cross-referenced those stills with images he found on

Google Street View. That helped him establish the precise location

of the video shoot, down to the exact mile marker where the Nikola

truck came to rest and the starting point of its journey. He called one

of his contacts in Utah with an unusual request: Go to that very spot

and re-create the truck roll, and film the entire thing. The contact

did so, albeit in a 2017 Honda Pilot SUV. It rolled for 2.1 miles and

reached a maximum speed of 56 miles per hour—entirely in neutral.

Bingo.

With that, Anderson could show how the company had pulled

off the video—a proof point of Nikola going to great lengths to mis-

lead the public. He wrote up his findings, replete with photos and

maps. “You just want to be 100% on those things,” he notes.

TIP NO. 1 FOR WOULDBE SHORTS

IF YOU’RE GOING TO TAKE DOWN A BIG STOCK,
SWEAT THE SMALL STUFF.

On Sept. 10, Hindenburg Research published a 67-page report on

Nikola—a huge dump of damning allegations. “Today, we reveal why

we believe Nikola is an intricate fraud built on dozens of lies over

the course of its Founder and Executive Chairman Trevor Milton’s

career,” the report began. The opening page set the tone: It included

24 bullet points that poured cold water on the company’s claims that

it was developing proprietary battery technology, and that it had

cracked the code on cheap hydrogen fuel production. The report

took repeated swipes at Milton. And it laid bare how the company

gave the Nikola One a push to get across the desert floor.

Nikola responded the following day, saying the report contained

“false and misleading statements” and that it had hired counsel to

“evaluate potential legal recourse.” For good measure, it added, “This

was a hit job for short sale profit driven by greed.” But three days

later, Nikola delivered a more detailed response—in which it copped

“A LOT OF GUYS HAVE COME AND GONE”

Carson Block of Muddy Waters says that activist

shorts’ successes have proved hard to replicate.

INVESTOR’S GUIDE • LITTLE BIG SHORTS

COURTESY OF MUDDY WATERS