Prominent Short Seller Accused Of Fraud
U. S. says Andrew Left manipulated stock prices with misleading reports
BY DAVE MICHAELS AND JUSTIN BAER
Federal prosecutors on Friday charged famed short seller Andrew Left with fraud, accusing him of routinely making exaggerated or misleading statements about stocks to quickly profit on price moves caused by his reports.
The charges mark a major turn of fortune for the bombastic investor, who called his firm Citron Research because it analyzes the “lemons” of the stock market. He scored a major hit a decade ago with well-timed bets against onetime highflier Valeant Pharmaceuticals International but hadn’t matched that success more recently.
An indictment returned by a Los Angeles grand jury accused Left of essentially trading on his name and reputation, announcing his bets and naming price targets far from where a stock was trading. Left quickly closed his positions after his statements caused prices to move in the direction he wanted, the indictment says.
Left, reached Friday morning, had no immediate comment. James Spertus, an attorney for Left, said the cases are “based on a defective theory” and unfairly target his client for legitimate opinions and trading activity. “Mr. Left does his research and shows his work,” Spertus said. “That sets him apart from every pump and dump defendant in history.”
His appearances on cable news networks and statements on social media magnified the impact of his reports and caused others to follow his bets, according to prosecutors.
Left “used his platform as a securities commentator to manipulate the markets and enrich himself in the process,” said Los Angeles U.S. Attorney Martin Estrada, whose office brought the case.
The Securities and Exchange Commission also sued Left and Citron in Los Angeles federal court, accusing him of civil securities fraud.
Left, who operated out of Los Angeles for most of his career, faces criminal charges of securities fraud and lying to federal investigators. The indictment says he manipulated the prices of at least 15 stocks
over a five-year period, earning illegal profits of $16 million. He sometimes suggested stock prices would fall by 50% or more but closed his positions after share prices had moved only a couple of percent, according to the indictment.
In an interview with The Wall Street Journal in 2015, Left said he tried to make Citron’s research more appealing than the typical Wall Street fare. “Sometimes you have a great story and the biggest challenge is, ‘How do I get people to read it?’ ” Left said at the time. “Wall Street research is painfully boring. I enjoy being entertaining.”
Many stocks that Left, 54 years old, alleged to be powered by fraud later became targets of regulators. More than 50 companies covered by Citron Research were the subject of regulatory investigations, lawsuits or exchange delisting since 2001, his website says. He was sometimes right when he accused companies of questionable or fraudulent practices.
His work on drug giant Valeant, which questioned how it used a network of pharmacies it controlled, was largely on the mark. An executive at Valeant was later convicted of involvement in a kickback scheme.
Left’s indictment caps a three-year effort by the Los Angeles U.S. Attorney’s Office and fraud-section prosecutors in Washington, D.C., to examine the tactics short sellers use to instigate and then profit from a stock’s decline.
Prosecutors also accused Left of hiding ties to hedge funds that got early notice of his research and, in some cases, passing off their trading ideas as his own. The hedge funds traded in advance of his reports’ becoming public and shared a portion of profits with him, the indictment says. When asked by federal investigators in January 2021 about one of those episodes, Left lied and said he “never, never, never” gave prior notice of a report to a hedge fund in exchange for compensation, according to the indictment.
Left also misled the market by disseminating reports that suggested he managed money for other investors, when he only invested his own funds, according to the indictment.
Short sellers have long served an important role in the markets. Betting stocks will fall in price can help investors hedge against risks, identify overpriced shares and even root out fraud.
Short sellers say their research enjoys free-speech protections. But corporate executives often complain that they exaggerate a company’s problems or mislead by publishing more than they really know.
Left has long described himself as a publisher, and his website describes the limits of what he reveals.
Left had no duty to disclose how he traded after publishing his opinions, Spertus said. When Left closed positions, it was a legitimate risk-management decision, he added. “Every investor should be concerned about these charges because they are intended to reduce the amount of truthful information for investors to consider,” Spertus said.
Left never lied to investigators, Spertus added. Left’s work with the hedge fund was a collaboration and the short seller was compensated for his own trade, the attorney said.
In a different instance cited by prosecutors, Left shorted American Airlines stock in June 2020, a few months after the pandemic caused airline stocks to decline.
In a message he wrote on Citron’s account on Twitter, Left predicted that American would fall another 50% to $10.
But Left bought options that only required a small decline in price to pay off. Within 10 minutes of posting the tweet, Left closed out most of his bet on American shares. He dumped the rest within half an hour.
In some cases cited in the indictment, Left bet that stocks would rise, rather than fall, in price. But he didn’t hold the conviction for long. In 2018, Left wrote on Twitter that he was bullish on Tesla. Within one minute of writing that on Twitter, Left sold more than half his stake and pocketed $1 million, according to the indictment.
Prosecutors accused Left of manipulating the price of other stocks, including Facebook, now known as Meta, and Nvidia. He also “initiated a media campaign to discredit another activist short seller’s short report” on General Electric. In ridiculing Harry Markopolos’s report asserting that GE had aggressive accounting, Left published his own research indicating he owned the stock. In truth, the prosecutors wrote, he had already placed an order selling his GE shares when his report was published.
The cases against Left say he knew that his recommendations would move stock prices, which “empowered him to manipulate the price of a targeted security.” The SEC’s lawsuit says that stocks mentioned in his reports and tweets moved, on average, more than 12% after he published.
Left called his reports “catalysts,” according to the legal complaints, and told a business associate to “trade on day of article or day before” and “get out immediately on catalyst.” When he targeted stocks held by small shareholders, his strategy worked like taking “candy from a baby,” Left said, according to the SEC.
If convicted in the criminal case, Left faces a maximum sentence of 20 years in prison on each of 17 securities-fraud counts, 25 years on a separate securities-fraud charge and five years for one count of lying to investigators.
Left took a big loss when betting against GameStop three years ago. Some individual investors responded by sharing his personal information, hacking into his social-media accounts and texting Left and his two children with threatening and profane language, the Journal reported in 2021.
Left mused on a video at the time: “When we started Citron, it was to be against the establishment. We’ve actually become the establishment.”
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