SEC Files Securities Fraud Lawsuit Against Short Seller Andrew Left and Citron Research
The U.S. Securities and Exchange Commission (SEC) has filed a securities fraud lawsuit against Andrew Left, a well-known short seller, and his company Citron Research. The regulator alleges that Left and his company profited from misleading comments about stocks, engaging in illegal trading practices.
SEC Allegations
The SEC contends that Left and Citron Research made approximately $20 million in illegal trading profits by trading in a manner contrary to what they told investors. Left would buy stocks almost immediately after telling his readers to sell, and sell stocks almost immediately after telling his readers to buy. This strategy allowed him to profit from short-term price swings resulting from his misleading commentary.
Furthermore, Left and his firm would quickly sell or buy stocks at levels far different from the price targets they gave investors who followed their research or tweets. The SEC lawsuit states that Left bragged about the effectiveness of his statements in inducing retail investors to trade based on his recommendations, comparing it to taking “candy from a baby.”
Trades in 23 Companies
According to the SEC, between March 2018 and December 2020, Left and Citron Research engaged in trades in 23 companies on 26 separate occasions. Some of the companies involved in these trades include Nvidia, Tesla, American Airlines, Facebook (now Meta Platforms), Alibaba, Twitter, GE, and Palantir.
The SEC also alleges that Left created the image of a “successful hedge fund” through his media appearances, despite the fact that the fund had no outside investors and only traded with Left’s money. Additionally, Left is accused of receiving compensation from a hedge fund that traded based on his recommendations, although he denies such an arrangement.
SEC’s Demands
In addition to seeking the $20 million in illegal gains made by Left and Citron Research, the SEC is requesting that Left be barred from participating in any penny stock offering. The regulator also wants Left and any entity controlled by him to be prohibited from trading in securities for at least five days after making any public commentary.
DOJ Criminal Case
The U.S. Department of Justice (DOJ) has also opened a criminal case against Andrew Left. The DOJ alleges that Left manipulated the stock market and made at least $16 million in profits. Left is charged with one count of engaging in a securities fraud scheme, 17 counts of securities fraud, and one count of making false statements to federal investigators. If convicted, he could face a maximum penalty of 25 years in prison on the securities fraud scheme count, 20 years in prison on each securities fraud count, and five years in prison on the false statements count.
Left’s attorney, James Spertus, argues that neither agency alleges that the information Left published was not believed to be true at the time of publication. He claims that all of Left’s publications contained detailed disclosures and called the case against Left “defective.”
The outcome of the SEC lawsuit and the DOJ criminal case against Andrew Left and Citron Research will have significant implications for the short-selling community and the regulation of stock market activities.
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