The DOJ alleges that Left made at least $16 million by knowingly exploiting his ability to move stock prices.
REUTERS/Brendan McDermid/File Photo; Getty Images; Chelsea Jia Feng/BI
Andrew Left, the famed short-seller who made millions betting against public companies, has been charged with fraud by federal prosecutors.
The Citron Research founder was charged with 17 counts of securities fraud on Friday, as well as making false statements to federal investigators, according to a release from the Justice Department.
Left — who prosecutors say took in profits of at least $16 million — rose to prominence on Wall Street nearly a decade ago, when he made a high-profile bet against Valeant Pharmaceuticals, now known as Bausch Health. His report, which compared the company to Enron and quickly tanked the stock, proved largely accurate. An executive at the firm was later convicted as part of a kickback scheme that gave business to the pharmacies it controlled.
With his high profile established, Left regularly used social media and TV appearances to promote his research as a short-seller.
His subsequent bearish commentary focused on other popular companies, including Hertz, Nikola, and American Airlines, arguing that their stocks were overvalued. Prosecutors specifically cited sharp share-price losses in American after a tweet from Left, after which he closed out most of his short position.
But not all of Left's public commentary was negative. In 2018, he said on Twitter that he was bullish on Tesla. He sold more than half his stake within a minute of posting, making $1 million on the share pop, the indictment said.
"Left established long or short positions in the public company on which he was commenting in his trading accounts and prepared to quickly close those positions post-publication and take profits on the short-term price movement caused by his commentary," prosecutors said.
Left also had some misfires. He incurred a high-profile loss on GameStop as the stock skyrocketed following an unprecedented groundswell of retail-investor activity. Citron stopped publishing reports in the wake of the short squeeze, with Left saying his family was harassed by an "angry mob" of GameStop investors. Even then, he maintained an online presence, posting about various companies on social media or, at times, appearing on televised segments on CNBC, Fox, and Bloomberg.
"The commentary routinely included sensationalized headlines and exaggerated language to maximize the reaction it would get from the stock market," prosecutors said. "As alleged, Left knowingly exploited his ability to move stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make fast, easy money."
The indictment also claimed Left made false statements about his research firm's connection to hedge funds. Prosecutors said he falsely stated on one occasion that his research firm "never" received compensation or lined up its trading with another hedge fund before releasing a report.
"To further the scheme, Left allegedly advanced the false pretense that his investment recommendations were credible because he was independent and free from any financial conflicts of interest," the complaint added. "However, Left allegedly concealed Citron's financial relationships with a hedge fund by fabricating invoices, wiring payments through a third party, and making false and misleading statements to the public about Citron's relationship with hedge funds."
Left has downplayed his role as a Wall Street financier. Citron's website lists him as the firm's "executive editor," saying Citron's goal is to "provide truthful information in an entertaining format."
"Sometimes, you have a great story and the biggest challenge is, 'How do I get people to read it?'" Left said in a 2015 interview with The Wall Street Journal. "Wall Street research is painfully boring. I enjoy being entertaining."
In an interview with Bloomberg last year, Left said he didn't know why investigators were looking into his firm.
"I don't know what the government is going to do," he said. "Activists are just people who basically just do extra homework and express their opinion. I don't know what the exact investigation is about, but it has to do with short-sellers and activist short-sellers, obviously."
Citron Research did not immediately respond to a request for comment from Business Insider.
Correction: July 26, 2024 — An earlier version of this story misstated the status of Nikola. It is still in business, not defunct.
