Prominent short seller Andrew Left indicted on securities fraud

LOS ANGELES (CN) — Andrew Left, a prominent short seller who frequently appears on CNBC, Fox Business and Bloomberg Television, has been accused of making between $16 and $20 million in illegal profits by manipulating the stock market.

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, according to an indictment filed in federal court in California on Thursday.

The SEC on Friday likewise sued Left and his company, Citron Capital, accusing him of deceiving investors who followed his misleading guidance.

Short-selling is an investment practice in which investors bet against the value of a stock.

Unlike standard investing, in which someone buys a stock directly with the belief that its value will increase, short sellers instead earn profits when a stock's value goes down. Investors can make such bets in a number of ways, including by agreeing to buy the stock at a later date.

As a prominent short seller, Left used social media and reports to share his beliefs that a particular stock was over- or undervalued. He often purported to expose negative information on a target company, the SEC said, using "hyped rhetoric" to urge readers to sell stock.

In reality, authorities say, this so-called negative information was often just a ruse to create a quick fluctuation in the stock price, which Left would then use to liquidate his position.

They accuse him of doing the same with long positions — that is, regular stock purchased. Following Left’s reports and tweets, the SEC says, the price of the target stocks moved on average more than 12%.

"Left bought back the stock almost immediately after telling his readers to sell, and Left sold stock almost immediately after telling his readers to buy," the SEC claimed in its complaint. "This fraudulent practice deceived investors and allowed Left to use his Citron Research reports and tweets as catalysts from which he could derive short-term profits."

Left didn't immediately respond to a request for comment on the accusations.

In one example cited by federal prosecutors, Left in November 2018 wrote to a portfolio manager regarding chipmaker Nvidia Corp.

“Do you want to make some fast money?" he asked the person, using the company's ticker to tell them to "put together a thesis why NVDA is oversold."

"We can destroy it," Left added, according to communications cited in his federal indictment.

Later that day, authorities said, Left took short-dated call options in Nvidia that expired just three days later. Such trades can offer quick profits if a stock suddenly moves in the narrow timeframe before expiration.

Left then touted Nvidia on Citron’s Twitter account, according to the Justice Department.

“Citron buys $NVDA," Left wrote, according to his federal indictment. "This is the first time in 2 years [this] stock offers an appealing risk-reward to investors . . . We see $165 before we see $120.” Nvidia’s stock was trading at about $143.64 at the time, and Left's tweet was reported on by major media outlets.

But less than two hours after announcing “Citron buys $NVDA,” Left sold all his pre-tweet positions as Nvidia was trading around $151 — making about $960,000 in profits, according to the Justice Department. Nvidia closed at a high of $154 on the day of Left’s tweet and fell to $144 the next day, the government says.

Authorities say Left also misrepresented his trading positions during appearances on financial news programs.

After denouncing one company as a fraud on CNBC’s “Fast Money,” prosecutors say, Left falsely claimed to have covered only a “small size” of his position in the company’s stock. In fact, authorities said that earlier that same day, he had already closed out the majority of his position following the publication of commentary through Citron.

Follow @edpettersson

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