Mullen Automotive Securities Lawsuit Investigation
On Wednesday, April 6, 2022, Hindenburg Research published a report alleging that EV manufacturer Mullen Automotive misrepresented test results for its solid-state battery technology, exaggerated its business relationships, and overstated its ability to manufacture and sell its branded products.
Following this news Shares of Mullen Automotive dropped 10% on April 6, 2022, causing significant harm to investors.
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Why is Mullen Stock Dropping?
On Wednesday, April 6, 2022, Hindenburg Research released a scathing report accusing development-stage electronic vehicle (EV) manufacturer, Mullen Automotive, of overstating its business deals, production timeline, and battery technology, among other things. According to Hindenburg Research, Mullen falsely claimed that two electric cargo vans it would be manufacturing were its own, when they are actually Chinese EVs called the Qiantu K50, rebranded with a Mullen logo. Mullen allegedly defaulted on its payment obligations to Qiantu, and Qiantu terminated their agreement in October 2019, yet Mullen continued marketing the vehicle as its own product, despite lacking the finances or technology to commercially produce these vehicles on its own, per the Hindenburg report.
Mullen may have overstated battery technology, per Hindenburg Report
As reported by Hindenburg, in a February 2022 press release, Mullen made sweeping claims about its solid-state battery testing, claiming that its battery cell “yielded 343 Ah at 4.3 volts,” which the company claimed is almost double that of other top EV companies. In response, the CEO of the company that performed the test results explained that these results were actually recycled from a previous testing cycle and asserted:
“[w]e never would have said that. We never did say it and certainly wouldn’t have said it based on the results of testing that battery,” as alleged in the Hindenburg report.
If you invested in Mullen stock, you may have a legal claim. Contact our securities lawyers for a free and confidential consultation.
SPACs Like Mullen Automotive (MULN) Face Lawsuits and SEC Scrutiny
SPACs, or special purpose acquisition companies, are commonly known as “blank check” shell companies. SPACs provide an alternative to the traditional IPO process and serve the primary purpose of raising investor proceeds to eventually acquire a private company. According to InvestorPlace, Mullen Automotive went public on June 15, 2020, through a stock-for-stock reverse merger with SPAC, Net Element Inc. The day after the merger, the company announced in a press release that it expected to launch its luxury sports car—the Dragonfly K50—by the second quarter of 2021, but they failed to meet this deadline, as alleged by Hindenburg Research.
While SPAC investors have the potential to realize significant gains, they are also much more vulnerable to market volatility and other types of fraud. According to the Wall Street Journal, the SPAC process isn’t subject to the same rules about disclosure and marketing practices as standard initial public offerings and may give companies like Mullen Automotive more leeway to attract investors with projections of future revenue and profit that may not hold up.
Investors may be vulnerable to a variety of SPAC fraud by sponsors, including:
- Misrepresenting material facts related to the SPAC or the company to be acquired;
- Failing to properly investigate or conduct due diligence on the company to be acquired; or
- Engaging in self-dealing or failing to disclose conflicts of interest with the acquisition company.
SPACs have recently come under SEC scrutiny and investor lawsuits against SPACs are on the rise. According to MarketWatch, many of these lawsuits allege SPAC directors failed to disclose sufficient information about the companies they intended to merge with. As of April 2022, the SEC has proposed new disclosure requirements for SPACs to mitigate these concerns. The Wall Street Journal states that the proposals, if implemented, “would make it harder for SPACs to raise money from investors and execute mergers.”
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