Mullen Automotive files suit against investors, alleging they used ‘spoofing’ to manipulate its share price

Spoofing is the “submission and cancellation of buy and sell orders without the intention to trade in order to manipulate other traders,” the company said in a regulatory filing, citing the Securities and Exchange Commission’s definition.

The SEC has described spoofing as a “harmful strategy” used by some high-frequency traders that creates the impression of substantial offer-book imbalances as a way to manipulate prices.

“During the relevant period defendants placed thousands of spoofing orders to sell to create the illusion that the share price of Mullen was declining. These orders were intended to ‘trick’ or ‘bait’ other investors into selling their shares which further drove Mullen’s share price downward,” the filing said.

Also read: Mullen Automotive’s stock at record low as it pushes ahead with plan for another reverse stock split

Mullen
MULN,
-5.13%
said it relied on the Nasdaq being an efficient market that was not being manipulated when it sold more than 5 billion shares at prices that it has since learned were artificially depressed by spoofing. That caused the company to lose hundreds of millions of dollars, if not more, the filing said.

Typically, traders buy when they think the price of a security is likely to go higher and sell when they think the price will go lower.

“However, one of the clear signs of manipulative spoofing is a rapid reversal of trading direction — for example, where a market participant places many sell orders, followed by a buy order, followed by the cancellation of the sell orders,” the filing said. “This type of behavior strongly suggests that the original sell orders were not intended to be executed, and instead, were merely a ploy to drive the price downwards to ‘buy low.’”

From the archive (July 2023): Mullen Automotive’s stock more than doubles in 2 days. Here’s why.

The defendants in the suit are named as IMC, an Illinois limited-liability company; Clear Street, a Delaware limited-liability company; UBS, a Delaware limited-liability company; and John Does 1 through 10, entities that include market makers, broker-dealers, subsidiaries, affiliates and sister companies of the defendants and defendants’ customers, whose identities are currently unknown.

The suit has been filed in the Southern District of New York.

Mullen is a loss-making company with net losses of $792.7 million in the first nine months of fiscal 2023 through June 30. That is wider than the loss of $523.1 million posted in the year-earlier period.