The Securities and Exchange Commission (SEC) announced charges against activist short seller Andrew Left and his firm, Citron Capital, for engaging in a $20 million multi-year scheme to defraud followers by publishing false and misleading statements regarding his supposed stock trading recommendations.
The SEC’s complaint alleges that Left, who resides in Boca Raton, Fl., used his Citron Research website and related social media platforms on at least 26 occasions to publicly recommend taking long or short positions in 23 companies and held out the positions as consistent with his own and Citron Capital’s positions.
The complaint alleges that following Left’s recommendations, the price of the target stocks moved more than 12% on average. According to the SEC’s complaint, once the recommendations were issued and the stocks moved, Left and Citron Capital quickly reversed their positions to capitalize on the stock price movements. As a consequence, Left bought back stock immediately after telling his readers to sell, and he sold stock immediately after telling his readers to buy.
“Andrew Left took advantage of his readers. He built their trust and induced them to trade on false pretenses so that he could quickly reverse direction and profit from the price moves following his reports,” said Kate Zoladz, director of the SEC’s Los Angeles Regional Office, in a statement. “We uncovered these alleged bait-and-switch tactics, which netted Left and his firm $20 million in ill-gotten profits, and we intend to hold Left and his firm accountable for their actions.”
The complaint alleges that Left and Citron Capital made several false and misleading statements in connection with the scheme. For example, it alleges that defendants told the market that they would stay long on a target stock until the price hit $65 when, in fact, they immediately began selling the stock at $28.
It further alleges that they falsely represented to the market that Citron Research was an independent research outlet that had never received compensation from third parties to publish information about target companies when, in fact, the defendants had entered into compensation arrangements with hedge funds.
The SEC previously settled public administrative charges against Dallas-based registered investment adviser Anson Funds Management LP and Toronto-based exempt reporting adviser Anson Advisors Inc. for conduct involving their relationship with Left and other short publishers.
In a parallel action, the Fraud Section of the US Department of Justice and the Attorney’s Office for the Central District of California announced charges against Left.