WTF Is Going On: The Milton Pardon, SignalGate and A Musk Merger

Catching up on yet another busy week

On the second day of his second term, President Donald Trump pardoned Ross Ulbricht. Ulbricht was convicted of operating the “Silk Road” website, a platform which facilitated the sale of drugs and other illegal products. In 2015, he was sentenced to life in prison.

Trump framed the pardon as both a response to government overreach and a “ridiculous” sentence (Ulbricht actually received two life sentences, plus another 40 years). On both fronts, the president may have had a point. The investigation of Ulbricht and Silk Road was problematic, to put it mildly: two agents who worked on the case were sentenced to prison for stealing Bitcoin seized from the site. Meanwhile, prosecutors claimed that Ulbricht had attempted to have multiple people murdered, an allegation which appears to have impacted his sentence but was never actually proven (an indictment related to those charges was dropped in 2018).

Indeed, Ulbricht had become a bit of a cause célèbre among libertarians; outlets such as Reason and Rolling Stone had long argued for his release. Trump had already promised to commute Ulbricht’s sentence in a May 2024 speech, part of an apparently successful outreach to skeptical libertarians (as well as ‘crypto bros’ who were also Ulbricht supporters). In that context, the move made political sense as well; it satisfied a key, if small, base yet didn’t really give the opposition much room for criticism (many on the left would probably agree that two-plus life sentences for a nonviolent offense is overly punitive).

Reasonable people could (and did) argue that Ulbricht deserved to stay in prison, given the volume of illegal drugs his platform helped move. But particularly in the context of recent presidential pardons, Trump’s decision to free Ulbricht was not particularly noteworthy. It was also politically smart. But his pardon of Trevor Milton, confirmed by the White House on Friday, is neither.

How Trevor Milton Wound Up In Jail

In 2015, Trevor Milton founded Nikola, which aimed to be, essentially, the Tesla of the trucking industry, with plans to develop battery-powered (this would eventually change to hydrogen-powered) commercial trucks along with a nationwide fueling network. Milton — who had no engineering experience, but had proven a reasonably successful serial entrepreneur — proved an incredible salesman for his vision. Five years after its founding, Nikola went public via a merger with a SPAC (special purpose acquisition company)¹; in June 2020, the company’s valuation was more than $20 billion.

But three months later, an activist short seller (an investor who highlights negative information about companies, using a short sale to bet that the share price will decline) named Hindenburg Research released an explosive report on Nikola. The allegation that gained the most traction was that a video, posted to social media, of a Nikola truck on the road actually was just footage of a “pusher” — a vehicle that isn’t actually functional. In this case, Nikola just rolled the truck down a hill:

source: Hindenburg Research

Hindenburg quoted Milton repeatedly saying the truck was not a “pusher”; Milton himself would admit to Bloomberg that he had exaggerated the capabilities of the truck.

But the debate over whether the truck was actually operable (Milton, kind of, claimed that it was²) overshadowed some of the more basic allegations. Milton repeatedly said Nikola developed its own inverters (which convert DC electricity to AC); Hindenburg showed that its inverters were actually bought from a third-party, with Nikola putting masking tape over that company’s label. Milton appears to have lied about the company’s hydrogen production capabilities, and (per the complaint filed by the Securities and Exchange Commission) Nikola’s battery technology as well.

Milton would resign from Nikola in 2021; at the end of that year, the company paid $125 million to resolve charges from the SEC (though the company did not admit to or deny the charges). In October 2022, Milton was convicted of one count of securities fraud (though acquitted on another count) as well as two counts of wire fraud. The jury deliberated for just six hours; he was eventually sentenced to four years in prison.

Why Was Milton Pardoned?

From the outside, this seems like a slam-dunk case of securities fraud. Milton continually and repeatedly claimed capabilities and products that Nikola simply didn’t have, and raised money through equity sales (in this case, the SPAC merger) Milton’s attorneys argued that the CEO, essentially, was just overly enthusiastic, but that’s not really much of a defense. Corporate executives are legally bound to tell the truth, and it’s difficult to argue that Milton met that standard. Indeed, it wasn’t even really news (and it certainly was not a surprise) when Milton was convicted; even by the standards of an era in which young companies overpromised (the overwhelming majority of SPAC mergers included projections that were wildly overstated), his behavior stood out.

So why the pardon? Trump explained that “They say the thing that he did wrong was he was one of the first people that supported a gentleman named Donald Trump for a president…I had these fantastic recommendations about him from people that you know very well, all top-of-the-line people. They thought it was a horrible thing.” He would later add that Milton “did nothing wrong”.

The first part of the explanation is strange — and simply seems false. Milton probably supported Trump in 2015, but as far as I can tell he didn’t so publicly. He did donate $1,500 to the campaign in 2016, but more importantly, had Milton supported Trump more aggressively, no one would have cared. Nikola was little more than a concept at that point, Milton had no celebrity, and his own campaign contribution records described him as “self-employed”.

Milton was neither a fervent, early, nor well-known supporter of Trump’s first run. No one would have targeted him for his support, particularly because Milton does not appear to have given any money or even public support to the 2020 campaign, either. (Nor would he have been incentivized to: a Biden win almost certainly was much better for Nikola, a ‘clean energy’ start-up, then a second Trump term.)

The second part likely gets closer to the truth. Milton’s legal team included Brad Bondi — the brother of Attorney General Pam Bondi. It seems likely that the idea that Milton was “railroaded” came from Brad Bondi, if not necessarily directly. But that claim is complicated, at least, by the fact that Nikola settled with the SEC (and that $125 million fine is large for a company its size; it was so large the agency allowed it to be paid in five quarterly installments) and the fact that Milton resigned soon after the Hindenburg report, never again to receive any support from the company or its management.

Meanwhile, Nikola has filed for bankruptcy, and its stock trades at 14 cents (it briefly doubled after the pardon was announced, though it retreated on Monday). The $20 billion-plus in paper losses can’t all be blamed on Milton’s actions (subsequent management did not exactly cover itself in glory), but the inflated value after the company went public no doubt was created in part by Milton’s consistent efforts to paint the company as much stronger and much more advanced than it actually was.

In terms of the crime and in terms of the politics, this simply seems like a bad pardon, in a way that Ulbricht’s was not. The optics look terrible: since Trump’s explanation doesn’t really make sense, allegations of corruption have gained steam. While Milton was not a major supporter of Trump’s first or second campaigns, he was an aggressive backer of the third. All told, he has donated nearly $3 million to conservative politicians, with nearly a million going to the Trump campaign or associated PACs (political action committees).

Corruption might not be the cause, however. Milton’s contributions to Trump are less than $1 million, something like 0.05% of the campaign’s total 2024 fundraising haul. It simply doesn’t seem like enough money to take on the political risk of pardoning a CEO whose stock went pretty much to zero, hurting mostly individual investors in the process. (Most SPACs, particularly in 2020 when Nikola stock peaked, were disproportionately owned by individual rather than institutional investors.)

Instead, it seems like Trump may have been told that Milton’s story mimics what he sees as his own, with a ‘weaponized’ government going after a committed patriot who did nothing wrong. (Not coincidentally, that is the tale that Milton himself is telling.) And that story would seem likely to have from Brad Bondi, if not necessarily directly than in some form or manner.

That in turn leads to a stunning and potentially dark conclusion: that Trevor Milton was freed from jail for lying to investors largely because someone, or several someones, successfully lied to the president of the United States.

SignalGate And Trump Media

In our piece earlier this month on Trump Media & Technology Group, Donald Trump’s media company established in 2021, we noted some questionable decisions around the funding of the business as it moved toward its own SPAC merger. These decision probably can be attributed in large part to the fact that, as we wrote, “there simply weren’t many financial grown-ups in the room.” Neither TMTG nor its merger partner had anyone with real experience in raising capital, a surprising development given how important that merger was (it created a company that, even before the merger officially closed, was worth over $10 billion).

As we’ll see when we return to that story later this week, the lack of experience would hurt TMTG. And it’s not hard to see parallels in the unforced error that was ‘SignalGate’, in which The Atlantic editor-in-chief Jeffrey Goldberg was mistakenly added to a chat discussing “war plans” or “attack plans” (depending on one’s perspective) for a bombing campaign in Yemen.

For all the debate over technicalities and the responsibility of Goldberg, Secretary of Defense Pete Hegseth, National Security Advisor Michael Waltz, and others, it’s seemingly been left unnoticed that, as with TMTG, there wasn’t anyone on the chat with real experience in leading these conversations. Both Waltz and Hegseth served honorably, but neither had executive branch experience, something which appears true for even junior figures on the call.

And here, too, Trump wound up with a massive problem that simply didn’t need to happen. Obviously, it doesn’t require a previous Cabinet-level position to notice an unauthorized visitor on what essentially was a group chat, but having someone with operational experience might have led to basic preventative measures being taken.

President Trump clearly selects for ideology and loyalty (perhaps not necessarily in that order) over experience, and those who see the ‘deep state’ as working against him (particularly during his first term) likely support that perspective. But selecting solely for ideology and loyalty has cost Trump repeatedly — and seems to have done so again.

The X/xAI Merger

Less than two weeks ago, Bloomberg reported that X, the company owned by Elon Musk and formerly known as Twitter, had raised money at a $32 billion valuation. When added to a reported $12 billion in debt, this figure, not coincidentally, created the price Musk had paid for the business in 2022.

This in turn led to headlines that Twitter’s valuation had rebounded sharply — which we argued was precisely the point. The $32 billion figure was created by an apparently small raise, much of which was funded by Musk himself.

As it turns out, however, the headlines weren’t the only point. Musk on Friday disclosed that X and xAI, his generative artificial intelligence startup, were merging. According to Musk on X, the all-stock merger values X’s equity at $33 billion (and so the company at $45B) and xAI’s equity at $80 billion³.

This would seem to be another data point in favor of the idea that X’s valuation has rebounded strongly of late. In fact, it’s likely the opposite. For one, per reports Musk controls both companies, and so he pretty much had free rein to value each business in the deal. (This is not entirely true, as we’ll discuss in a moment.) X reportedly also owned a 25% stake in xAI, which ostensibly is worth ~$20 billion; it’s not clear whether that is included, but it probably should be (that stake was added to X to incentivize buyers of the equity, including in the most recent round, as well as debt that banks had a terrible time selling).

Some readers might respond that if X is overvalued in this deal, then surely the shareholders of xAI would revolt. Even if Musk has majority control, they can sue to block the deal on the grounds that his conflict of interest (as a controlling shareholder in both companies) is driving a poor deal for them.

But this is simply the nature of investing with Elon Musk. In 2016, Musk’s Tesla acquired solar installer SolarCity, which just happened to have been founded by Musk’s cousins, for $2.6 billion. Some investors and observers criticized the deal, arguing that SolarCity likely was headed for bankruptcy and was simply being bailed out by Musk on Tesla’s dime. But shareholders mostly backed Musk, as did (eventually) Delaware judges.

In 2018, Tesla shareholders approved a pay package for Musk that could hit $50 billion. It was invalidated by a Delaware judge last year (due to Musk’s influence over the board) — but Tesla and its shareholders have pushed for the deal to be reinstated (this is a key rationale for the company’s move out of Delaware last year).

It is ironic that critics claim that because of Musk’s role within the Trump Administration that “the rules don’t apply to him”. In the equity markets, the rules have never really applied. Musk did pay a $20 million fine to the SEC for tweeting that he was considering a buyout, but he’s largely ignored a requirement, as part of that settlement to get approval for posts on Twitter/X (known as the “Twitter sitter” rule). He made $50 billion in compensation; shareholders were happy (they collectively had made more than $500 billion, at least on paper). He lost $50 billion, and shareholders want to give it back (which makes sense — if Musk were to leave Tesla, the one-day loss likely would exceed that $50 billion figure). He buys Twitter for $44 billion, tries to back out of the deal, then rewrites history to suggest it was all about free speech in the first place.

In other words, in the equity market, no, the rules do not apply to Elon Musk. But that’s not necessarily corruption or cowardice; rather, it’s what happens when someone creates more than a trillion dollars in value⁴ pretty much out of thin air⁵. It remains to be seen whether that strategy will work in the political arena as well as it has in the financial world.

As of this writing, Vince Martin has no positions in any companies or securities mentioned.

1. This is the same mechanism used by Trump Media & Technology Group, which we covered earlier this month.

2. The company, hysterically, argued in a response to Hindenburg that it hadn’t lied because it never actually said the vehicle worked: “Nikola described this third-party video on the Company's social media as ‘In Motion.’ It was never described as ‘under its own propulsion’ or ‘powertrain driven.’“

3. In other words, the shareholders of X will get 33/(33+80), or 29.2%, of the equity of the combined company, while the shareholders of xAI will receive 80/(33+80), or 70.8%.

4. Tesla is worth ~$800 billion, SpaceX over $200B, X/xAI $100B+, and Neuralink a few billion.

5. “Pretty much” because Musk didn’t actually found Tesla.