Mullen Automotive (NASDAQ:MULN) stock is back in the red today. The troubled electric vehicle producer recently gave retail investors the news they’d been waiting for — that it had hired a law firm to investigate naked short selling. This sparked a rally for MULN stock as investor enthusiasm surged along with share prices. But in keeping with its history, Mullen is down again today as reality sets back in. This should signal to investors that the investigation is unlikely to yield any results.
Even with last week’s gains, MULN stock has still fallen more than 98% over the past six months. The company has pushed the narrative that its poor performance can be attributed to illegal naked short selling. However, plenty of other factors have pushed shares down almost 100% over the past year.
MULN Stock and Naked Shorting Allegations
When a meme stock fails to garner momentum, it has become a common strategy for retail investors — or the underlying company — to blame the practice of naked short selling. This refers to selling shares short before they have been determined to actually exist.
On July 5, Mullen released a statement announcing that it had retained the services of Christian Attar to combat what it believes to be illegal short selling activity against MULN stock. The law firm is working in partnership with Warshaw, Burstein, LLP to conduct an investigation.
News of this development sent MULN surging, quickly making it the most heavily traded stock among retail investors. Other firms have also been sounding the alarm regarding naked shorting over the past year. When the Financial Industry Regulatory Authority (FINRA) halted trading of MMTLP, the preferred shares of Meta Materials (NASDAQ:MMAT), retail investors began to cry foul, blaming naked shorting.
As it turns out, the leader of the firm that Mullen hired has also been hired by Meta Materials for the same purposes. Forbes reports that Wes Christian, managing partner of Christian Attar, has used the naked short selling narrative as a means of explaining why meme stocks fail, conveniently ignoring the financial problems that often push them down. As the outlet reports:
“Like most perfect narratives, this one isn’t true. It’s doubtful that ‘naked short-selling’ even exists anymore. In 2008, the SEC amended a rule called Regulation SHO, and made naked short-selling all but impossible, according to Pradeep Yadav, a professor at the University of Oklahoma who studies financial markets and says there’s actually no way ‘to associate a particular short-sale with a particular failure to deliver.'”
What It Means
If what Forbes reports is true, the investigation isn’t likely to yield any positive results for Mullen. The EV producer has hired a firm to find evidence that may not even exist. A failed investigation would only serve to highlight the real factors pushing MULN stock down, such as the possibility of it delisting from the Nasdaq and issuing questionable communications.
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On the date of publication, Samuel O’Brient 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.
