(Bloomberg) — U.S. authorities have accused famed short seller Andrew Left of committing fraud through stock trades, social media posts and research reports – their biggest move yet in a yearslong crackdown on traders touting their bearish bets.
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The Securities and Exchange Commission alleged Friday that Left used his company Citron to generate about $20 million in profits from illegal trading involving nearly two dozen companies. The Justice Department also announced a criminal case against Left, accusing him of securities fraud and lying to investigators about hedge fund compensation.
The cases against the Left stem from a massive U.S. effort to investigate the relationships between hedge funds and skeptical researchers. The investigations have roiled the industry for three years as investigators sought information on dozens of money managers and activists, as well as trades involving more than 50 stocks.
According to the SEC, Links used social media or television appearances to make recommendations about a stock he had short or long positions on, sometimes giving a target price at which he thought the stock would trade. The Justice Department said the Left would create the false perception that his public comments about a stock were consistent with his trading activities.
“The left has knowingly abused its ability to move stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make money quickly and easily,” he said. the Ministry of Justice in its statement.
James Spertus, a lawyer for the Left, said in an email that the government’s case was “flawed” and that his client was not required to disclose his personal trading intentions. Spertus said the information published by Left was “truthful information” necessary for markets to function efficiently.
“The DOJ and the SEC threaten the integrity of the securities markets and endanger the health of our financial system by attempting to silence a publisher of truthful information who also trades in the securities he writes about,” Spertus said.
Stock trading
The left would also quickly close positions after releasing an investigative report or making comments, according to prosecutors. This would allow him to benefit from short-term price movements.
According to the SEC, Links’ misconduct affected stocks such as Tesla Inc., Roku Inc., American Airlines Group Inc. and Nvidia Corp.
“This fraudulent practice deceived investors and allowed Left to use his Citron Research reports and tweets as a catalyst from which to extract short-term profits,” the SEC alleged in the complaint.
The mere appearance of research from a prominent bear can send a stock into a tailspin before the market has time to debate its value – which can be especially difficult for retail investors who can’t react quickly. Companies and shareholders have increasingly shouted, prompting hearings in the US Congress.
The left took advantage of his inside knowledge that he was about to trigger moves in the market, the Justice Department indictment said. For his strategy to work, Links knew investors had to believe that the recommendations and positions he expressed were genuinely upheld, and not just vehicles from which he could personally benefit, prosecutors said.
‘Candy of a baby’
The SEC alleges that Left bragged to colleagues that some of his statements caused retail investors to act the way he wanted, and that it was like he was “taking candy from a baby.”
The SEC’s lawsuit documents dozens of Left’s social media posts, reports and comments from March 2018 through December 2020.
Left was charged in an indictment in federal court in California with participating in a securities fraud scheme, 17 counts of securities fraud and making false statements to federal investigators. If convicted, he could face more than 25 years in prison.
Prosecutors allege Left lied to law enforcement by stating that his company never exchanged compensation with a hedge fund. US authorities allege that Left received more than $1 million from two hedge funds.
–With help from Katherine Burton.
(Updates with left attorney comments in sixth and seventh paragraphs.)
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