Providing no shortage of excitement, the intense adrenaline rush that bolstered electric vehicle (EV) manufacturer Mullen Automotive (NASDAQ:MULN) earlier this year appears to have finally caught up with the company. Mere minutes away from a special shareholder meeting – which will primarily discuss litigation affecting Mullen – MULN stock dipped sharply. Apparently lacking impetus, investors now look to management for substantive guidance.
As InvestorPlace writer William White stated, a filing with the U.S. Securities and Exchange Commission (SEC) revealed that “the shareholder meeting concerns two putative stockholder class actions filed against the company in December.” Specifically, White notes, “the complaints from these plaintiffs have to do with the increase in outstanding shares that occurred during the July 26, 2022 annual meeting of stockholders.”
At the heart of the litigation is the legitimacy of Mullen’s prior actions to dilute the pool of MULN stock. Essentially, the plaintiffs claim the number of common shares issued and outstanding as of the annual shareholder meeting, which occurred on July 26, 2022, was 477.51 million. Based on this assessment, the proposal to increase authorized shares at said meeting should not have passed.
On the other end, Mullen’s management team denies wrongdoing in the matter. However, to cover the potential legal gaps, the EV maker intends to ratify the 2022 Certificate Amendment with a Delaware Court of Chancery filing, as White mentioned. The date for this hearing is scheduled for Jan. 23.
Effectively, then, the Court of Chancery will legitimize either Mullen’s or the plaintiffs’ position. Naturally, the uncertainty over the legal conflict sparked anxieties for MULN stock.
MULN Stock Drowning in Itself
Further, a Form 8-K document that Mullen filed on Dec. 23, 2022 revealed in the upcoming special meeting, the company sought to discuss a reverse stock split proposal. Previously, as InvestorPlace contributor Dana Blankenhorn mentioned, Mullen attempted to secure a reverse split on Dec. 23 but failed due to a lack of quorum.
Naturally, such a proposal likely risks a deleterious impact on MULN stock. Fundamentally, as both the SEC and the Financial Industry Regulatory Authority (FINRA) warned, while reverse splits may raise visibility for the target companies, they’re also less common among established enterprises. Moreover, reverse splits tend to be associated with low-priced, high-risk ventures.
Most prominently, though, a reverse split at this point seems purely a cynical attempt to keep MULN stock listed on the Nasdaq exchange. As a Bloomberg article published yesterday unceremoniously described, Mullen is “drowning its investors in shares.” The current share count stands at almost 1.7 billion when it tallied to fewer than 25 million a year ago.
To be sure, a reverse split doesn’t spell automatic doom. However, unless a clear catalyst exists to justify such a proposed change, investors may lose interest. Unfortunately, as others have pointed out, MULN stock brings on the exhilaration but fundamentally lacks substance.
Still, if the plaintiffs succeed in their litigation, it could also put the brakes on the aforementioned reverse stock split proposal.
Why It Matters
It’s not the first time Mullen found itself in hot legal water. In late June of last year, shareholders sued the company for failing to disclose information about CEO David Michery’s “outsized and unfair” award.
Should MULN stock continue to underperform, the embattled EV maker risks more stakeholders filing suit. Therefore, dark clouds may hang over Mullen unless it provides reasonable solutions.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.