DD Support Board and Research Team

[1manband]

Related to the Left/Citron charges was this SEC Administrative Action from last month that largely went unnoticed at the time. "Individual A" is undoubtedly Left and Citron, as the specific short reports and Tweets mentioned in the Order were done by Citron. The Order also says Anson worked with "Short Publishers", plural. This may signal more firms are in the SEC's crosshairs.

https://www.sec.gov/files/litigation/admin/2024/ia-6622.pdf

On the basis of this Order and the Respondents’ Offers, the Commission finds that:

Summary

1. These proceedings arise from the Respondents’ work with activist short publishers who issue reports presenting bearish views of target securities (“short reports”). From at least 2018 through 2023 (the “Relevant Period”), the Private Placement Memorandum (“PPM”) for Anson Investments Master Fund (“AIMF”), the private flagship fund that Respondents advised, described a short position investment strategy to be used for AIMF but omitted that AIMF’s investment strategy involved working with activist short publishers and trading in the target securities, including around the time the reports were issued by activist short publishers, and paying a portion of AIMF’s trading profits to the short publishers in exchange for the short publishers sharing their work with Respondents in advance of posting it publicly. In addition, by not disclosing this practice, Anson Funds did not implement its written policy to “clearly articulate” AIMF’s short strategy or the risks associated with this strategy, in violation of the Advisers Act.

2. In addition, in September and October 2018, Anson Advisors agreed to pay “Individual A,” the principal of a short activist firm (hereafter, “Short Publisher A”), a share of AIMF trading profits in connection with Short Publisher A’s bearish reports and tweets on two securities. As a result of AIMF’s trading, Individual A’s share of AIMF’s trading profits exceeded $1.1 million, which Respondents paid through a third-party intermediary via invoices for purported research services that the third-party intermediary had not performed. Anson Funds inaccurately recorded these payments as payments to the third-party intermediary for such research services and in doing so violated the Advisers Act books and records provisions. Further, by failing to implement its written policies regarding the accuracy of records, Anson Funds violated the Advisers Act compliance rule.

3. As a result, and as detailed below, Anson Advisors violated Section 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, and Anson Funds violated Sections 204 and 206(4) of the Advisers Act and Rules 204-2, 206(4)-7, and 206(4)-8 promulgated thereunder.

Respondents

4. Anson Funds Management, LP is a limited partnership organized under the laws of Texas with a principal place of business in Dallas, Texas. Anson Funds was founded in 2003. It has been registered as an investment adviser with the Commission since 2012 and as of March 2024 reported having approximately $2.5 billion in regulatory assets under management.

5. Anson Advisors, Inc. is a corporation organized under the laws of Ontario, with a principal place of business in Toronto, Canada. Anson Advisors was founded in 2007. Anson Advisors is registered with the Ontario Securities Commission and has reported to the Commission as an exempt reporting adviser since 2013. Anson Advisors and Anson Funds are co-investment advisers of a number of private pooled investment vehicles, including AIMF.

Other Relevant Entities and Persons

6. Anson Investments Master Fund LP is the Respondents’ flagship fund and a Cayman Islands limited partnership.

7. Short Publisher A is an activist short publisher that presents itself to the market as an independent research firm. Short Publisher A purports to expose frauds or other problematic conduct at target companies through its own website and twitter feed.

8. Individual A founded Short Publisher A around 2008 and has been writing and disseminating reports and tweets through that platform since its inception.

AIMF’s Private Placement Memorandum

9. During the Relevant Period, the Respondents were co-investment advisers of private pooled investment vehicles, including AIMF. They received an asset-based management fee and performance-based compensation from their clients. The Respondents worked together to determine fund strategy, manage risk, communicate with investors, and to draft marketing materials. Anson Advisors was primarily responsible for making investment decisions, while Anson Funds was primarily responsible for operational and administrative tasks, such as financial and compliance functions for both firms pursuant to a shared services agreement. The shared services agreement contractually obligated the Respondents to provide each other certain support services in connection with the day to day legal, compliance, and operations of each party.

10. The Respondents’ investor materials describe AIMF as a long-short fund, meaning the fund employed a strategy of taking both long and short positions in certain securities to enhance returns. The PPM for AIMF, which Respondents prepared and sent to actual and prospective investors to solicit investment in the fund, described the AIMF short position investment strategy as “scour[ing] the market using various data filters and screens to identify companies with significant short-term stock price appreciation that we believe is not justified by a corresponding improvement in underlying businesses prospects” and “monitor[ing] larger industry trends” to take short positions in companies the Respondents “expect to suffer the same decreased stock price and then hold the positions until the stock prices decreases to reflect the industry-wide decline.”

The Respondents’ Practice of Working with Activist Short Publishers

11. During the Relevant Period, the Respondents worked with activist short publishers who released reports presenting bearish information about target companies. These short reports were often posted on independent social media sites operated by the short publishers.

12. Respondents had formal consulting agreements with some of the short publishers, which at times provided that the short publisher would share its work with Respondents prior to public posting. In exchange, Respondents agreed to pay the short publisher, at times based on a percentage of AIMF’s profits from trading in the target security for an agreed period of time around the publication of the report.

13. Anson Advisors directed trading by AIMF. Generally, AIMF would secure a short position prior to the release of the reports. The price of the target securities often decreased after the reports were published, and AIMF would often cover its short position for a profit.

Anson Funds was aware of the arrangements and monitored AIMF positions and the share of AIMF profits owed to the short publisher pursuant to the agreements.

14. At other times, Respondents had informal arrangements with short publishers whereby they would exchange research and content with the short publishers, but would not enter into a formal consulting agreement with them.

Respondents’ Relationship with Individual A and Short Publisher A

15. During the Relevant Period, Respondents at times worked on an informal basis with Short Publisher A, which was operated by Individual A. In late 2018, Respondents paid Individual A a portion of AIMF’s trading profits regarding two securities in connection with Short Publisher A’s reports and tweets regarding those securities.

16. In September 2018, Anson Advisors contacted Individual A about Short Publisher A issuing bearish reports on Namaste Technologies, Inc. (“Namaste”), a company whose securities traded on the Canadian Securities Exchange. Namaste’s securities were also quoted on the OTC Link under the symbol “NXTTF.” Anson Advisors and Individual A worked together to prepare two bearish reports and tweets, which Short Publisher A published in September and October 2018. In exchange, Anson Advisors agreed to pay Individual A a share of AIMF’s profits from its short position in Namaste. AIMF’s short positions in Namaste in September and October generated approximately $3.8 million in profits.

17. In October 2018, Anson Advisors agreed to pay Individual A a share of AIMF’s profits from trading around Short Publisher A’s bearish tweet on India Globalization Capital, a company whose securities traded on the NYSE American stock exchange under the symbol “IGC.”

Short Publisher A published a bearish tweet regarding IGC in early October 2018, stating that the stock was overvalued. AIMF’s short positions on the day of the tweet generated approximately $500,000 in trading profits.

18. As a result of AIMF’s trading in Namaste and IGC, Individual A was owed more than $1.1 million of AIMF’s trading profits. Individual A did not pay or contribute funds to Respondents to purchase securities in either Namaste or IGC. Individual A asked Anson Advisors to send him his share of trading profits through a third-party intermediary, to which Respondents agreed. The third-party intermediary provided Anson Funds with invoices for purported research services that had not been performed by the third party intermediary and inaccurately stated that the amounts invoiced were for the benefit of the third-party intermediary, when they were for the benefit of Individual A. Anson Funds issued payment to the third-party intermediary, and Individual A collected payment from that third-party intermediary.

Respondents’ Omission of Their Work with Activist Short Publishers Rendered the PPM’s Description of Investment Strategies Misleading

19. The PPM for AIMF, which Respondents prepared and sent to actual and prospective investors, described a short position investment strategy for AIMF but omitted that AIMF’s investment strategy involved working with activist short publishers and trading in the target securities. The PPM for AIMF did not disclose this strategy, including that Respondents entered into agreements with activist short publishers and would compensate some short publishers by paying them a share of AIMF trading profits.

20. Respondents’ agreements with and payments to short publishers, including Individual A, was information that investors would have found material. The omission of this conduct from the AIMF PPM, which was not available to investors through other means, rendered its statements about its short strategy misleading.

Anson Funds Failed to Maintain Accurate Books and Records and to Follow Its Policies and Procedures

21. Anson Funds inaccurately recorded the payments for the benefit of Individual A in its journal and ledgers as payments to the third-party intermediary for research services, when in fact they were to Individual A for trading profits.

22. Anson Funds’ compliance policies and procedures required the keeping of accurate books and records. Among other things, this included restrictions on using money or approving transactions when the funds would be used for purposes other than those described. Anson Funds failed to implement this policy when it approved and paid Individual A through the third-party intermediary.

Anson Funds Failed to Implement its Compliance Policies and Procedures Regarding Accurate Disclosure of Fund Strategies

23. Anson Funds adopted compliance policies and procedures requiring it to “clearly articulate” in the PPMs for the pooled investment vehicles it managed, its investment strategies; these policies and procedures required the firm to provide “disclosure as to how funds are to be invested, what factors will influence investment performance and what risks are associated with the Account’s principal investment strategy.”

24. By omitting from the description of its short strategy in the PPM its practice of working with short publishers and paying them a share of AIMF trading profits, Anson Funds did not “clearly articulate” its short strategy or the risks associated with this strategy.

Violations

25. As a result of the conduct described above, Anson Advisors and Anson Funds willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-8(a)(1) and (2) thereunder, which makes it unlawful for any investment adviser to a pooled investment vehicle to (1) make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made not misleading, or (2) otherwise engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle. Proof of scienter is not required to establish a violation of Section 206(4) of the Advisers Act or the rules thereunder. S.E.C. v. Steadman, 967 F.2d 636, 647 (D.C. Cir. 1992).

26. As a result of the conduct described above, Anson Funds willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require registered investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder.

27. As a result of the conduct described above, Anson Funds willfully violated Section 204 of the Advisers Act and Rules 204-2(a)(1) and (2) thereunder. Section 204 of the Advisers Act requires investment advisers to make and keep certain records and furnish copies thereof, and to make and disseminate such reports as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Rule 204-2 provides that investment advisers registered or required to be registered shall make and keep true, accurate and current books and records in specified categories.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondents’ Offers.

Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, it is hereby ORDERED that:

A. Anson Funds cease and desist from committing or causing any violations and any future violations of Sections 204 and 206(4) of the Advisers Act and Rules 204-2(a), 206(4)-7, and 206(4)-8 promulgated thereunder.

B. Anson Advisors cease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder.

C. Respondents are censured.

D. Respondent Anson Advisors shall, within ten days of the entry of this Order, pay a civil money penalty in the amount of $1,000,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.

E. Respondent Anson Funds shall, within ten days of the entry of this Order, pay a civil money penalty in the amount of $1,250,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.