Last Updated on 09/09/2024 by Arun jain
Andrew Left built a reputation on Wall Street as an outspoken investor adept at making money by exposing corporate fraud and betting against overvalued stocks. But federal authorities claim that Mr. Left sometimes misled his loyal followers about his intentions.
Authorities in Los Angeles Criminal and civil fraud charges filed In July, Citron Research’s founder sued Mr. Left, alleging that he made at least $16 million in illegal trading profits through stock manipulation. Prosecutors and regulators accused Mr. Left of using his fame to tell investors to do one thing while he traded in another, failing to comply. Price targets he has published in reports on stocks.
The charges stem from a years-long investigation into the activities of some traders known as activist short sellers: investors like Mr. Left who publicly publish critical reports on companies and then bet on those companies’ share prices falling. Mr. Left was the only short seller to be falsely accused, and some legal experts are questioning whether the government overreached with some of its claims against him.
The allegations against Mr. Daberi have also upset other activist short sellers. Some suggest that Mr. Left has become an easy target given his public profile and because short sellers are sometimes seen as a nuisance on Wall Street, where most investors prefer to see stock prices go up rather than down.
Companies targeted by short sellers often force regulators and lawmakers to go after investors, who say they feel Unfairly defamed. The allegations against Mr. Left appear to be related to practices common by activist short sellers. Some have said they are considering revising their disclosures about trading policies.
Short sellers say they help keep markets in check, especially in times of overexuberance, when investors can ignore a company’s fundamentals as stock prices rise. Activist short sellers often compare themselves to investigative journalists, performing a valuable service by calling out frauds and digging up dirt.
Mr. Left, 54, who lived in Beverly Hills, Calif., now lives in Boca Raton, Fla. A judge set bail at $5 million, and Mr. Left was required to post $1 million in cash or other collateral.
At the heart of the criminal and civil charges against Mr. Left is that he never intended to trade in a manner that was consistent with the recommendations in his reports.
This Securities and Exchange Commission It’s called a “bait and switch” strategy. “The left bought back stocks immediately after it told its readers to sell, and it sold stocks immediately after it told its readers to buy,” the agency said.
Federal prosecutors Mr. Left used “exaggerated language” in his commentary and said he “used his ability to move stock prices” with his social media posts.
Legal experts said the authorities appeared to be suggesting that when Mr. Left set a price target for a company’s stock in his reports — a common practice in stock research in the financial industry — he was bound to comply and trade accordingly. were Advice for time.
“It’s a tough case,” said Andrew Calamari, a lawyer for Finn Dixon & Herling and a former director of the SEC’s New York office, who appeared to say he made a very specific misrepresentation that he was planning to take the position. And he didn’t. People can change their minds.”
Mr. Left’s lawyer, James Spertus, said his client, who has pleaded not guilty to criminal charges, never misled investors about his trading intentions.
“There are no lies,” said Mr. Spurtus. “Mr. Left-handed traders do not hold back their investment until the target is achieved. No one expects him.”
The authorities also argue that Mr. Left made financial arrangements with hedge funds, some of which traded around the release of his reports, and that he misled investors by not disclosing those deals. Federal prosecutors said Mr. Left lied to investigators about his dealings with hedge funds.
The officials did not allege that Mr. Left’s research reports contained false allegations against the companies he covered. Investors and analysts like Mr. Left also have a First Amendment right to recommend that investors buy or sell stocks.
Gina-Gail S. Fletcher, a Duke University School of Law professor who specializes in market regulation, said traders are not required to disclose their buy-sell orders immediately. She also said officials would have had a hard time building a case against Mr. Left if he had not published price targets.
“You are under no obligation to speak, but when you speak you must be true,” she said. Still, there was something “unsatisfying” about the allegations presented, she said.
Representatives for the US Attorney’s Office for the Central District of California and the SEC declined to comment.
Legal experts said the charges against Mr. Left ignore the fact that sometimes short sellers must abandon a price target to avoid what is known as a short squeeze.
Short sellers make money by borrowing shares, selling them, and then waiting for the price to fall to buy them back cheaply to return them to the lender. In a short squeeze, the share price rises rather than falls, forcing short sellers to buy shares to limit losses on their bets.
Mr. Left was one of the more notable short sellers who 2021 Lost Money in Mem-Stock CrazeBecause a group of individual investors helped boost GameStop’s stock price even as the video game retailer’s business was struggling. In part, these buyers saw their actions as a form of rebellion against well-heeled investors betting on the decline.
Mr. Left and other sophisticated investors were shorting GameStop and lost billions of dollars in a short period of time.
One of the SEC’s proposed remedies in its civil complaint against Mr. Left would be to prohibit him from trading within five days of the release of the report. Some lawyers said that would allow investors to gang up on Mr. Left and create a short squeeze.
“That five-day period is completely arbitrary,” said Daniel Hock, a lawyer at the firm Arnold & Porter and former director of the SEC’s market abuse unit. “Five days in a market that reacts to news in seconds or minutes is overwhelming and uneven.”
Edwin Dorsey, who writes The Bear Cave, a newsletter that focuses on corporate fraud and misconduct, said he was surprised that the authorities placed so much emphasis on Mr. Left’s price targets.
“Price targets are fluid,” said Mr. Dorsey, who said he does not short shares of the companies he writes about.
Mr. Dorsey said Mr. Left was an unusual target for authorities because he had helped uncover fraud at several companies, including pharmaceutical firms. the brave. The firm of Mr. Lieut says on its site The “over 50 companies” the company wrote about have become the subject of regulatory scrutiny.
“From my perspective, we’re in an era where there’s a lot of antipathy toward short sellers,” said Carson Block, founder of Muddy Waters Capital, another well-known activist short-selling firm.
Federal authorities served subpoenas and search warrants on Mr. Block and his firm during the investigation that led to the charges against Mr. Lieut. The SEC recently notified Mr. Block that it did not intend to file charges against him, a person briefed on the matter said.
“Until we get to a point where a lot of people lose a lot of money and see the risks as real,” Mr. Block said, “we’re definitely going to be unpopular.”
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