Electric vehicle (EV) manufacturer Mullen Automotive (NASDAQ:MULN) is suffering from some conspicuous erosion on Tuesday. Already known for its volatility, MULN stock dropped slightly below 9 cents earlier today. Sitting on a 52-week low, the company also filed a lawsuit against a media company, which may be a risky move.
According to Mullen’s press release, the EV upstart filed the complaint against Intersection Media Group:
“[Mullen] filed a civil complaint for defamation in the Superior Court of Delaware today alleging that on March 22, 2023, dot.LA published an article on its website authored by David Shultz that contained false and defamatory statements regarding Mullen, including false and defamatory statements regarding the terms of a settlement agreement of a civil action.”
Intersection Media Group does business as dot.LA, which covers established technology stalwarts and startups. The news site has frequently covered Mullen and its various struggles. However, the outlet’s recent coverage of a contractual dispute between the EV company and Qiantu apparently aggrieved Mullen’s management team.
On the surface, this may seem like a win for MULN stock, with the lawsuit underscoring the potential harm of false information for businesses. Nevertheless, the market seems to understand that this matter is also a two-way street.
Defamation Lawsuit Presents Risks for MULN Stock
At the moment, it’s not entirely clear what specific grievances Mullen has with the article. However, an editor’s note at the end of the story in question now states that the piece “has been corrected to provide a more accurate description of the financial terms of the settlement between Qiantu and Mullen.”
In its current form, the article also appears to align with core facts regarding the Mullen-Qiantu dispute. For instance, Shultz cites court documents and filings with the U.S. Securities and Exchange Commission (SEC) to establish his report. As a result, the defamation suit may fall flat, due to what seems to be a lack of malicious intent.
According to PBS, both public officials and public figures (which may include well-known businesses) acting as plaintiffs in a defamation suit must demonstrate “that the defendant acted with actual malice in publishing the defamatory statement.” PBS notes further:
“The actual malice standard means that the plaintiff must prove that you either (1) knew the defamatory statement was false; or (2) acted with reckless disregard for the truth—in other words, that you entertained serious doubts as to whether the statement was truthful.”
Of course, anyone wagering on MULN stock should watch this issue closely. It’s also important to recognize that defamation suits can backfire. Specifically, if the public views Mullen’s actions as “oppressive or contrary to free speech,” the company could ironically sully the reputation it was initially trying to protect.
Why It Matters
This isn’t the only issue weighing on MULN stock. Mullen has also struggled to meet deadlines and the like before. For instance, last June, CEO David Michery promised to reveal “everything” regarding the delivery of an EV van to a mystery Fortune 500 company. However, when the declared deadline passed, no update materialized.
That may have been small potatoes at the time. But the now-sharp erosion of MULN stock combined with the lawsuit decision may spark an unfavorable image for the company. Investors should tread carefully with this EV maker as a result.
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On the date of publication, Josh Enomoto did not hold (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.