Andrew Left, founder and CEO of Citron Research;
Adam Jeffery | CNBC
Federal prosecutors have criminally charged activist short seller and analyst Andrew Left with securities fraud related to his alleged use of his public platform to illegally profit at least $16 million by manipulating stock market activity contrary to positions he presented to the public from 2018 to 2023.
Left, a 54-year-old Florida resident who was a frequent guest commentator on CNBC and other business cable news channels, and hedge fund Citron Capital also were separately charged in a related fraud suit by Capital Market Commission.
That civil complaint in Los Angeles federal court accused Left and Citron of “engaging in a multi-year, $20 million scheme to defraud followers by publishing false and misleading statements about his purported stock trading recommendations.”
The lawsuit alleges fraudulent behavior with respect to 23 companies on at least 26 different occasions.
“The Left boasted to colleagues that some of these statements [he made] were highly effective in inducing retail investors to trade on his recommendations and he said it was like getting “baby candy,” the SEC alleged in that complaint.
The companies identified in criminal indictment as those on the Left allegedly traded in ways contrary to his public positions on their stock prices Nvidia, Teslasocial media company X, formerly known as Twitter; After, Roku, Beyond meat, American Airlines, PalantirXL Fleet, Invitation, General ElectricNamaste Technologies and India Globalization Capital.
The indictment alleges that, among other things, “Left coordinated with hedge funds to disseminate short reports and information to be posted on Twitter, coordinated with hedge funds regarding the timing of publication, and permitted hedge funds to trade in the Target Securities before reports were disseminated”.
“In exchange for sharing his planned announcements with the hedge funds prior to their public release, the hedge funds paid the defendant a portion of their trading profits,” the indictment states.
Left, who lives in Boca Raton, is expected to be arraigned in Los Angeles federal court in the coming weeks on the 19-count indictment, the US attorney’s office in LA said in a statement.
He declined to comment on the indictment and SEC complaint when contacted by CNBC.
Left’s attorney, James Spertus, said in a statement: “Mr. Left is a publisher who has taken extraordinary steps to comply with all laws and neither [Department of Justice] nor does the SEC claim that it ever published information that it believed to be untrue at the time it was published.”
“In contrast, the DOJ and SEC assert that Mr. Left had a duty to disclose his private commercial intentions when he publishes truthful information, which is a flawed theory for several reasons, including the fact that Mr. Left’s publications contain detailed disclosures written by qualified attorneys informing readers that Mr. Left negotiates the securities he writes about,” Spertus said.
The attorney also said the indictment and complaint threaten “the integrity of the securities markets and endanger the health of our financial system by attempting to silence a publisher of truthful information who also trades the securities he writes about.”
“The allegations filed today should concern all investors because the publication of truthful information is critical to efficient markets,” Spertus said.
Akil Davis, the FBI’s assistant director of the Los Angeles FBI, said in a statement: “Mr. Left’s presence on financial television networks and his significant online following provided a credible platform to disguise his intentions and manipulate it by investing in the public for personal gain.”
The indictment says Left used Citron’s online platform to comment on publicly traded companies and claim their shares were mispriced by the market, either too high or too low.
“Left’s recommendations often included an express or implied representation regarding Citron’s trading position and a ‘target price,’ which defendant Left represented as his own view of the actual value of the Target Security,” the indictment states .
“Left knew that his recommendations influenced investors’ decisions to buy or sell stocks and thus authorized him to manipulate the price of a Target Security,” the indictment said.
“By using the Citron Twitter account to create ‘catalysts’ – events with the potential to move stock prices – Defendant Left benefited from his foreknowledge that such market movements were about to occur.”
After using his influence to manipulate the price of a stock, Left “closed his positions to capitalize on the temporary price movement caused by his public statements,” the indictment alleges.
The SEC’s indictment and complaint give specific examples of Left’s alleged manipulation and exploitation of his contacts with business media outlets, including CNBC.
The SEC complaint says that in May 2019, Left and Citron Capital had a short exposure to Beyond Meat, which meant they stood to gain if the stock price fell.
Another Left firm, Citron Research, on May 17, 2019, issued a negative tweet on Beyond Meat, advising readers to sell the stock and setting a price target of $65 per share, at a time when the stock it was selling at about $87. per share.
“$BYND has become Beyond Stupid” and “We expect $BYND to return to $65 in gains,” this tweet said. “Despite his negative statements to the market, just 10 days ago Left told a colleague that he believed the price of BYND would rise, stating ‘I think BYND is going to 100,'” the SEC said in its complaint.
Within seven minutes of the tweet, Left exited most of its short position in Beyond Meat, and Citron Research “completely covered its short positions within 12 minutes of the tweet,” the complaint said.
“Later that day, in advance of an article CNBC planned to publish, a reporter emailed Left asking if he still held a trading position in BYND. In response, Left stated that he had ‘sorted some today,'” the complaint states .
“This statement was materially false and misleading because Left had exited most of its short position and Citron Capital had already sold all of its short position,” the complaint states. “Six minutes after this email exchange, Citron made an additional brief on BYND, prior to the release of the CNBC article.”
“Within an hour, CNBC published an article titled ‘Short Seller Says Beyond Meat Hype Is ‘Beyond Stupid,’ Bets Against Stocks,” the complaint states. “Following publication of the article, Citron withdrew this additional brief.”
Left, who formerly lived in Beverly Hills, California, is charged in the indictment with one count of participating in a securities fraud scheme, 17 counts of securities fraud and one count of making false statements to federal investigators.
If convicted, he would face a maximum sentence of 25 years in prison for the securities fraud scheme alone.
