Medbox Inc (OTCMKTS:MDBX) Slumps Back Down

After a miniature price rally last week, Medbox Inc (OTCMKTS:MDBX) went on a four-day red ride that sent it lower than it was before the jump. The stock traded over 3.4 million shares yesterday and stopped 14% down, at $0.079 per share.

The reason MDBX caught a boost on Oct 22 was a press release and an accompanying 8-K filing. The company informed that 10 separate class action and derivative lawsuits against MDBX and former and current officers and directors of the company alleging, among other things, unjust enrichment and abuse of control, were collectively settled. A number of settlements were entered into with the claimants, collectively effecting a “global settlement”, which equals release and dismissal of all claims.

Investors cheered as the news went up and bought MDBX up over $0.10 per share on Oct 22. However, there are a few important things they may have overlooked and possibly realized later, given the price slip that followed.

MDBX never disclosed what exactly this collective settlement entailed. All that the PR disclosed was that it would not have a “material adverse effect on the company’s financial position or results of operations”. Given the gravity of the accusations levied in the lawsuits, it’s not very likely the plaintiffs agreed to drop all claims against a bag of candy.

If there will be no material effect on the company, one very distinct possibility is that MDBX had to issue boatloads of shares to settle all those different cases. Of course, this is just a possible scenario and cannot be backed up by hard evidence, seeing how the company did not disclose the terms of the settlement.

One thing to keep in mind is that the company did raise its authorized share cap from 110 million shares to 410 million, so there’s plenty of breathing space in that area.