Federal officials from the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) sent a warning to Wall Street that misuse of two of its highest areas of growth – special purpose acquisition companies (SPACs) and retail investors could lead to criminal charges if they broke rules and regulations.

When they announced Trevor Milton’s indictment federal officials cautioned retail investors against being taken in by “a friend or a fast-talking salesman” when they decided to invest in a company.

Trevor Milton has been indicted in a Manhattan court and faces charges of allegedly defrauding investors by lying about Nikola, an electric vehicle startup founded by him. He pleaded not guilty.

The billionaire had taken Nikola public in June 2020. He used a SPAC to launch his company’s IPO. He reportedly abused the SPAC purpose by using social media to fraudulently release misinformation and lure investors.

U.S. Attorney Audrey Strauss said that the features of the SPAC structure were different from a traditional initial public offering or IPO and Milton had exploited those differences.

What is a SPAC?

A SPAC or a special purpose acquisition company is a publicly traded company that has no assets. It only has cash. It is formed as an investment vehicle whose only purpose is to raise funds. It then searches for and merges with a privately held company. A SPAC generally has a cache of cash and nothing else.

In May, SEC Chairman Gary Gensler said that the agency was exploring ways and means to appropriately protect retail investors as it tackled issues emerging around SPACs. Last year the SEC had warned investors about rashly investing in such companies just because they were backed by public figures.

Two other electric vehicle startups are also being investigated by the DOJ and SEC. Lordstown Motors confirmed to CNBC that the SEC and the DOJ were investigating the company while Canoo said that has received inquiries from the SEC.