Mullen Automotive (NASDAQ: MULN) has filed a complaint against GEM Global, alleging violations of the Securities and Exchange Act of 1934. The complaint, filed in the United States District Court for the Southern District of New York, accuses the GEM of engaging in illegal securities transactions.
Unregistered Securities Dealers Face Legal Scrutiny
The crux of the complaint revolves around the defendants operating as unregistered securities dealers, purchasing securities directly from issuers and swiftly selling them without complying with the Securities and Exchange Act. The plaintiffs argue that this conduct is in violation of Section 15(a) of the Act, which deems such transactions void.
The complaint contends that unregistered securities dealers, like GEM, present a business model that evades regulatory oversight and engages in transactions generating illegal profits. Recent civil actions by the Securities and Exchange Commission (SEC) against similar entities support the plaintiffs’ claim, highlighting the legal consequences faced by those operating without proper registration.
“Upon information and belief, the GEM Defendants, as a business, continue to unlawfully purchase securities under share purchase agreements with public company issuers and acquire warrants and shares of common stock (through, for example, exercises of the warrants), and then sell those shares into the public markets to reap profits for their own account,” the SEC filing suit.
Specific Allegations Against GEM Defendants
The legal action against GEM Global, GEM Bahamas, and founder Christopher F. Brown centers on three key agreements entered into on January 4, 2021: a share purchase agreement (SPA), a warrant to purchase common shares, and a registration rights agreement (RRA). The plaintiffs assert that the warrant, allowing GEM to purchase up to 6.6% of Mullen Techonologies common stock, was made unlawfully in violation of Section 15(a) of the Act.
During the preceding six months, the defendants are alleged to have conducted a minimum of four distinct securities transactions involving four different public company issuers: Surf Air Mobility, Inc. (SRFM) – 4,000,000 common shares; reAlpha Tech Corp. (AIRE) – 1,700,884 common shares; NRX Pharmaceuticals, Inc. (NRXP) – 675,000 common shares; and Jet.AI Inc. (JTAI) – 2,179,447 common shares.
The complaint further alleges that Brown, as the manager of GEM Global and GEM Bahamas, is in violation of Section 20(a) of the Act as the “control person” authorizing and directing the GEM entities to engage in securities transactions without proper registration.
Seeking Rescission and Legal Remedies
Mullen seek rescission of the warrant, along with attorneys’ fees and any other relief the court deems just and proper, including rescissionary damages.
GEM are also challenged on their attempt to dispute jurisdiction or venue, as the warrant expressly stipulates that any dispute arising must be brought in state or federal courts in New York.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
