US charges well-known short seller Andrew Left with fraud
The United States has accused Andrew Left, a well-known short seller, of engaging in fraudulent activities. Andrew Left, a well-known short seller, has been charged with fraud by federal authorities. The charges allege that he frequently made inflated or deceptive remarks regarding companies in order to immediately profit from price fluctuations induced by his reports.
The allegations represent a significant shift in fortune for the flamboyant investor, who named his company Citron Research due to its focus on analyzing the underperforming stocks in the market. A decade ago, he achieved significant success by making well-timed bets against the once-prominent Valeant Pharmaceuticals International. However, he has not been able to replicate that level of performance in more recent times.
A Los Angeles grand jury indictment has accused Left of engaging in trading activities based on his name and reputation, where he publicly announced his wagers and specified price goals that were significantly different from the current trading price of a company. According to the indictment, Left promptly liquidated his positions once his claims resulted in prices moving in the desired direction.
Prosecutors assert that his presence on cable news networks and his utterances on social media amplified the influence of his reporting and prompted others to emulate his wagers.
According to Los Angeles U.S. Attorney Martin Estrada, Left utilized his position as a securities analyst to manipulate the markets and profit personally.
Left, who primarily worked in Los Angeles during his professional life, is being accused of committing securities fraud and providing false information to federal authorities. According to the indictment, he engaged in price manipulation for a minimum of 15 stocks over a span of five years, resulting in illicit gains amounting to $16 million. According to the indictment, he occasionally predicted that stock prices would decrease by 50% or more. However, he would close his bets when share prices had only moved a few percentage points.
During a 2015 interview with The Wall Street Journal, Left expressed his efforts to enhance the attractiveness of Citron’s research compared to the usual content seen in Wall Street publications. “Occasionally, one may possess an exceptional narrative, and the primary obstacle lies in the question of how to entice individuals to peruse it.” Left stated at that moment. “Wall Street research is tediously dull.” I derive pleasure from being engaging and amusing.
Several stocks that Left claimed were fueled by fraudulent activities subsequently became the focus of regulatory scrutiny. According to his website, Citron Research has reported that over 50 firms it has covered have been the target of regulatory investigations, litigation, or have been removed from stock exchanges since 2001. Occasionally, his accusations against firms for engaging in dubious or deceitful tactics were accurate.
The user’s analysis of drug corporation Valeant, which scrutinized its utilization of a network of pharmacies under its control, was mostly accurate. A high-ranking official at Valeant was subsequently found guilty of participating in a kickback scheme that directed business towards the pharmacies.
The indictment of Left is the culmination of a three-year investigation conducted by the Los Angeles U.S. Attorney’s Office and fraud-section prosecutors in Washington, D.C. The investigation aimed to scrutinize the methods employed by short sellers to provoke and subsequently benefit from a decrease in a stock’s value. Short sellers engage in the practice of borrowing shares from other investors and subsequently selling them, with the expectation of repurchasing them at a lower price in the future and profiting from the price difference.
According to a story from The Wall Street Journal two years ago, the Justice Department confiscated hardware, trading records, and private emails in search of extensive conspiracies and evidence of market manipulation.
Prosecutors additionally alleged that Left concealed his connections to hedge funds that received advance knowledge of his study. Furthermore, he is suspected of presenting their trading concepts as his own. According to the indictment, the hedge funds engaged in pre-public trading of his reports and distributed a portion of the profits to him. According to the complaint, when questioned by federal authorities in January 2021 regarding one of those incidents, Left provided false information by denying any prior notification of a report to a hedge fund in exchange for pay.
According to the accusation, Left deceived the market by spreading information that implied he handled money for other investors, even though he exclusively used his own cash for investment.
Short sellers have traditionally played a significant role in the financial markets. Engaging in short selling of stocks can serve as a risk mitigation strategy for investors, enabling them to detect overvalued shares and potentially uncover instances of fraudulent activity. Shorts provided early warnings to investors on the 2008 financial crisis and played a crucial role in exposing scandals at Enron and Wirecard.
Short sellers argue that their research is protected by the right to free expression. However, corporate leaders frequently express dissatisfaction with the tendency of journalists to overstate a company’s issues or provide misleading information by publishing beyond their actual knowledge.
Left has consistently identified himself as a publisher, and his website outlines the boundaries of his disclosure. The website explicitly states that “Citron Research will not disclose the initiation or closure of a position,” a strategy that prosecutors now deem to be misleading.
Prosecutors have mentioned a specific example where Left engaged in short selling of American Airlines stock in June 2020, shortly after the collapse of airline equities due to the epidemic. In a tweet sent on Citron’s Twitter account, now under the name X, Left made a prediction that the value of American will decrease by an additional 50% to $10.
However, Left purchased options that had a low threshold for price decrease in order to yield a profit. Left quickly liquidated the majority of his investment in American shares within a little 10 minutes after publishing the tweet. He disposed of the remaining items within 30 minutes.
According to the indictment, Left engaged in betting on equities to increase in value, rather than decrease, in certain instances. However, his conviction was short-lived. In 2018, Left expressed his optimistic outlook on Tesla via a post on Twitter. According to the indictment, Left managed to sell almost 50% of his stock and made a profit of $1 million within one minute of posting that on Twitter.
Prosecutors have alleged that Left engaged in price manipulation of many securities, including Facebook (formerly known as Meta) and Nvidia. In addition, he launched a PR effort with the aim of discrediting a brief report by another activist investor that targeted General Electric. Left countered Harry Markopolos’s report, which accused GE of engaging in aggressive accounting, by publishing his own research that revealed his ownership of the stock. According to the prosecution, it is true that he had already executed a transaction to sell his GE shares prior to the publication of his report.
The accusation against Left alleges that he was aware of the impact his recommendations would have on stock prices, giving him the ability to manipulate the price of a certain investment.
If found guilty, Left may potentially receive a maximum jail sentence of 20 years for each of the 17 charges of securities fraud, 25 years for a second allegation of securities fraud, and five years for one count of providing false information to investigators.
In 2016, Hong Kong regulators accused Left of engaging in misconduct and subsequently imposed a five-year ban on his participation in the city’s securities market. The city’s securities authority has accused Left of deceiving investors by making false claims about property developer China Evergrande Group’s insolvency four years ago.
Left lodged an appeal against the suspension and subsequently, their correctness regarding Evergrande, at least in terms of direction, was validated. The corporation experienced a collapse earlier this year, and Chinese regulators have stated that its primary subsidiary engaged in fraudulent practices to artificially inflate sales and profits.
However, Left incurred a significant financial setback when he placed a bet against GameStop three years ago. In 2021, according to the Journal, certain individual investors retaliated by divulging his personal information, infiltrating his social media accounts, and sending threatening, vulgar, and intimate messages to Left and his two children via SMS.
Left reflected on a video, stating: “When we initially established Citron, our intention was to oppose the existing power structure.” We have indeed transitioned into the establishment.
