(Times Of Update) — U.S. authorities have charged notorious short-seller Andrew Left with committing fraud through stock trades, social media posts and research reports — their biggest move yet in a yearlong crackdown on traders who tout their bearish bets.
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The Securities and Exchange Commission (SEC) on Friday charged Left with using his company Citron to generate about $20 million in profits from illegal trades involving nearly two dozen companies. The Justice Department also announced criminal charges against Left, accusing him of securities fraud and allegedly lying to investigators about compensation paid by hedge funds.
Left’s prosecution stems from a sweeping U.S. investigation into the relationships between hedge funds and skeptical researchers that has roiled the industry for three years, with investigators seeking information on dozens of fund managers and activists, as well as trades in more than 50 stocks.
According to the SEC, Left would use social media or television appearances to make recommendations about a stock he had short or long positions in, sometimes giving a target price at which he thought the stock would trade. The Justice Department said Left created a false perception that his public comments about a stock corresponded to his trading activity.
“Left knowingly exploited his ability to drive stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make quick and easy money,” the Justice Department said in its statement.
James Spertus, Left’s attorney, said in an email that the government’s case was “flawed” and that his client had no obligation to disclose his personal trading intentions. Spertus said the information Left released was “truthful information” that is necessary for markets to operate efficiently.
“The Justice Department and the SEC are threatening the integrity of the securities markets and endangering the health of our financial system by attempting to silence a publisher of truthful information who also trades the securities he writes about,” Spertus said.
Stock market transactions
Prosecutors also said Left tended to quickly close his positions after publishing a research report or making comments. This allowed him to profit from short-term price movements.
Left’s misconduct affected stocks including Tesla Inc., Roku Inc., American Airlines Group Inc. and Nvidia Corp., according to the SEC.
“This fraudulent practice deceived investors and allowed Left to use his Citron Research reports and tweets as catalysts from which he could profit in the short term,” the SEC alleged in the complaint.
The mere publication of a study by a prominent bear can send a stock tumbling before the market has time to debate its merits, which can be particularly hard on small investors who can’t react quickly. Companies and shareholders are increasingly crying foul, leading to hearings in the U.S. Congress.
The left took advantage of this…
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