Nikola Corporation's Derivative Actions and Corporate Governance Risks: Assessing Litigation Impact on Investor Value and Long-Term Strategy Credibility

Nikola Corporation's trajectory from a high-flying electric vehicle (EV) startup to a Chapter 11 bankruptcy filer underscores the profound risks of corporate governance failures and litigation. Over the past five years, the company has faced a cascade of derivative lawsuits, regulatory penalties, and reputational damage, all of which have eroded investor value and cast doubt on its long-term strategic credibility.

Litigation as a Catalyst for Investor Value Erosion

The collapse of Nikola's stock price—from a peak of $34 in June 2020 to a post-Hindenburg Research report low of $8 in September 2020—exemplifies the immediate impact of litigation risks on investor confidenceNikola Investors Win Class Certification in Securities Fraud Litigation [https://pomlaw.com/monitor-issues/nikola-investors-win-class-certification-in-securities-fraud-litigation]^[3]. According to a report by Bloomberg Law, the short-seller report exposed a years-long fraud orchestrated by founder Trevor Milton, who was later convicted in 2022 for making materially false claims about Nikola's hydrogen fuel cell technology and production capabilitiesIn the Matter of Nikola Corporation. Admin. Proc. File No. 3-20687 [https://www.sec.gov/enforcement-litigation/distributions-harmed-investors/matter-nikola-corporation-admin-proc-file-no-3-20687]^[5]. This fraud, compounded by the complicity of board members and executives, led to a securities class-action lawsuit certified in federal court, which affirmed that Nikola's stock traded in an efficient market where investors relied on misleading statementsNikola Corp. Derivative Litigation - Cohen Milstein [https://www.cohenmilstein.com/case-study/nikola-corp-derivative-litigation/]^[1].

The financial toll of litigation has been severe. A proposed settlement of derivative actions in August 2025, slated for court approval on November 20, 2025, reflects the scale of shareholder demandsNikola Corporation Addressing Derivative Actions: Settlement [https://third-news.com/article/cc662a72-95a8-11f0-9e33-9ca3ba0a67df]^[4]. Meanwhile, the $83 million SEC settlement in February 2025—part of Nikola's broader Chapter 11 restructuring—highlights regulatory scrutiny's role in draining capitalNikola agrees to $83M SEC settlement - FreightWaves [https://www.freightwaves.com/news/nikola-agrees-to-83m-sec-settlement-after-bankruptcy-hearings]^[2]. As of February 2025, Nikola's bankruptcy filing left investors with a bleak outlook: any remaining assets after creditor payouts would only trickle to shareholders if sufficient value remains, a scenario deemed unlikely given the company's $47 million cash reserves and $25.7 million in projected net proceeds from insurance and defendant contributionsNikola Oversight 'in Shambles' With Convicted Founder's Fraud [https://www.law.com/delbizcourt/2023/09/08/nikola-oversight-in-shambles-with-convicted-founders-fraud-newest-derivative-suit-claims/]^[6].

Corporate Governance Reforms: A Fragile Path to Credibility

In response to governance failures, Nikola has implemented reforms, including bylaw amendments to tighten board nomination criteria and enhance transparencyNikola Corporation Refines Governance with Bylaw Amendments [https://markets.businessinsider.com/news/stocks/nikola-corporation-refines-governance-with-bylaw-amendments-1033052777]^[7]. The company has also made governance documents publicly available, a step praised by Harvard Law's Corporate Governance Blog as aligning with 2025 trends emphasizing ESG accountability and board oversightThoughts for Boards: Key Issues in Corporate Governance for 2025 [https://corpgov.law.harvard.edu/2025/01/31/thoughts-for-boards-key-issues-in-corporate-governance-for-2025/]^[8]. However, these measures come after years of systemic neglect. As noted in a Delaware Court of Chancery ruling, Nikola's “oversight was in shambles” during Milton's tenure, with directors failing to correct his fraudulent claims or establish adequate internal controlsNikola Oversight 'in Shambles' With Convicted Founder's Fraud [https://www.law.com/delbizcourt/2023/09/08/nikola-oversight-in-shambles-with-convicted-founders-fraud-newest-derivative-suit-claims/]^[6].

While CEO Steve Girsky has emphasized a pivot to hydrogen fuel cell trucks and energy infrastructure, the company's strategic credibility remains compromised. A 2025 Reuters analysis noted that Nikola's asset sale process under Chapter 11 reflects a lack of viable long-term plans, with high interest rates and macroeconomic headwinds further constraining its ability to scale productionNikola files for Chapter 11 bankruptcy protection - CNBC [https://www.cnbc.com/2025/02/19/nikola-chapter-11-bankruptcy-protection.html?msockid=1f335eb7abe4691a33e448daaa8b686a]^[9]. Even if governance reforms succeed, the shadow of past misconduct—exemplified by Milton's conviction and the SEC's $125 million 2021 penalty—will lingerIn the Matter of Nikola Corporation. Admin. Proc. File No. 3-20687 [https://www.sec.gov/enforcement-litigation/distributions-harmed-investors/matter-nikola-corporation-admin-proc-file-no-3-20687]^[5].

Investor Implications: A High-Risk, Low-Reward Proposition

For investors, Nikola's story serves as a cautionary tale about the interplay between litigation, governance, and market trust. The company's stock price volatility, coupled with its bankruptcy status, suggests limited upside potential. As of September 2025, Nikola's shares trade at a fraction of their pre-2020 valuation, with analysts at Barchart.com noting that “creditors will be prioritized over shareholders in any restructuring, leaving little room for equity recovery”Nikola Stock 2025 Forecast: Will NKLA Go Bankrupt, or Become a Multibagger [https://www.barchart.com/story/news/24444681/nikola-stock-2025-forecast-will-nkla-go-bankrupt-or-become-a-multibagger]^[10].

Moreover, the legal landscape remains uncertain. While a November 2025 court hearing could finalize derivative settlements, ongoing lawsuits against former executives and the unresolved claims in Arizona and federal courts indicate prolonged litigation risksNikola Corporation Addressing Derivative Actions: Settlement [https://third-news.com/article/cc662a72-95a8-11f0-9e33-9ca3ba0a67df]^[4]. For institutional investors, the case highlights the importance of rigorous due diligence in ESG-focused sectors, where technological innovation often outpaces corporate accountability.

Conclusion

Nikola Corporation's journey from fraud allegations to bankruptcy underscores the critical role of corporate governance in sustaining investor value. While recent reforms and asset sales aim to stabilize the company, the legacy of litigation and regulatory penalties has irreparably damaged its long-term credibility. For investors, the lesson is clear: even in high-growth industries, governance failures and unchecked leadership can transform innovation into insolvency.