Joe Light
A prominent short seller, featured often in Barron's and other news outlets, is facing charges from the Securities and Exchange Commission and Justice Department for market manipulation. For retail investors, it's a lesson in why a media personality's apparent devotion to a position needs always to be taken with a grain of salt.
The case on Friday involves Andrew Left, founder of Citron Research and investment vehicle Citron Capital LLC. The Department of Justice on Friday charged Left with fraud, saying the prominent short seller made at least $16 million in profit through market manipulation. Prosectors said Left's commentary used "sensationalized headlines and exaggerated language" to move stocks, and that he quickly closed his own positions after publishing. The Securities and Exchange Commission brought its own lawsuit against Left, who lives in Boca Raton, Fla., seeking disgorgement and other penalties.
Left declined to comment to Barron's.
Left was at one time one of the most often quoted "activist short sellers." He and others like him would take a short position in a stock and then publish research showing why they believed its price would fall, sometimes including allegations of fraud or other wrongdoing. Citron would take long positions too, and in 2021 Left said his firm would no longer publish short reports after an ill-fated bet against GameStop.
The allegations are a good reminder to investors of what might happen behind the scenes as investors publicly tout their positions.
The case is a big step for the SEC, which over the past few years has launched several investigations against activist short sellers. Defenders of bearish bets say the short sellers are providing an important service to investors, exposing problems that regulators and other investors have missed. Targets of the short sellers, on the other hand, often claim that the allegations are false or exaggerated.
According to the SEC's complaint, Left and his investment fund Citron Capital LLC, which the SEC said never had outside investors, would take long or short positions in his target companies, sometimes with options. He would issue a report or social media post telling his readers about the position, often giving a price target and recommendation that the readers take a similar position. Then he would capitalize on the immediate movement in the target's stock price, buying back shares he had just told readers to sell or vice versa, according to the SEC.
In one example, the SEC said Left and Citron Capital took a short position in video streamer Roku. Left tweeted that Roku was "uninvestable." Within two minutes of the tweet, Left started buying back Roku shares and had completely covered the position within nine minutes, according to the complaint. The complaint said Left later suggested to readers that he hadn't traded in Roku around the tweet.
The SEC said Left also lied to the media about his positions. During an interview with CNBC about Canadian cannabis company Cronos Group, the interviewer asked Left if he was still short the company. While Left said that he "took a small-size position off today," the SEC complaint said Left had actually exited 75% of his short exposure by that time.
Barron's was among the publications that frequently quoted Left or cited his reports.
The SEC said Left's investment fund didn't hold money other than his own. But even large hedge funds aren't forced to publicly disclose short positions. The SEC has lately tried to push forward rules that would require funds to submit reports on their short-selling activity, with a time lag, but those reports would be anonymized.
According to the SEC complaint, following the publication of Citron's research, the prices of target stocks moved more than 12% on average and that the defendants' profits sometimes totaled in the millions of dollars "from trading around a single tweet."
The Justice Department said that, if convicted, Left would face a maximum of 25 years in prison on the securities fraud scheme count alone.
Write to Joe Light at joe.light@barrons.com
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(END) Dow Jones Newswires
July 26, 2024 12:28 ET (16:28 GMT)
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