Mullen Automotive Inc.’s stock (MULN) experienced a 2.9% increase in value early Friday, following the company’s decision to take legal action against a group of investors. The lawsuit alleges that these investors engaged in a practice known as “spoofing” to manipulate Mullen’s share price between November 9, 2021, and November 9, 2023.
Spoofing, as defined by the Securities and Exchange Commission (SEC), involves the submission and cancellation of buy and sell orders with no intention of completing the trades. This deceptive tactic is used to manipulate other traders. The SEC considers spoofing to be a harmful strategy employed by certain high-frequency traders, which creates the false impression of substantial offer book imbalances in order to manipulate prices.
According to Mullen’s regulatory filing, during the specified period, the defendants allegedly placed thousands of spoofing orders to sell Mullen’s shares. The intention behind these orders was to create an illusion of a declining share price for Mullen. Their aim was to “trick” or “bait” other investors into selling their shares, ultimately driving down Mullen’s share price further.
Mullen Automotive Inc., at the time, relied on the efficiency of the Nasdaq market, assuming that it was not being manipulated when it sold over 5 billion shares. However, the company has since discovered that the prices at which it sold these shares were artificially depressed due to spoofing. As a result, Mullen suffered significant financial losses, potentially reaching hundreds of millions of dollars or more.
The defendants named in the lawsuit include IMC, a limited liability company based in Illinois; Clear Street, a limited liability company based in Delaware; UBS, a limited liability company based in Delaware; as well as John Does 1 through 10. The latter entities consist of market makers, broker-dealers, subsidiaries, affiliates, and sister companies associated with the defendants, along with the defendants’ customers. At present, the identities of these entities remain unknown.
The lawsuit has been filed in the Southern District of New York. So far this year, Mullen’s stock has experienced a significant decline, falling by 99.8%. In contrast, the S&P 500 index has witnessed a commendable gain of 19.4%.