Andrew Left, the founder of Citron Research, has pleaded not guilty to a series of federal securities fraud charges.
These allegations, brought by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), accuse Left of manipulating stock markets for personal gain and misleading investors.
The Charges and Surrender of the Citron Research Founder, Andrew Left
The charges against Left stem from allegations that he manipulated stock market activity for personal profit. The indictment, issued by a grand jury last week, includes 19 criminal counts.
Left is accused of using his public platform, which included social media posts on X (formerly Twitter) and appearances on CNBC, to make illegal profits of at least $16 million.
He allegedly engaged in trading activities, contradicting his public stock price positions. The indictment involved major firms such as Nvidia, Tesla, Twitter, Meta, Roku, Beyond Meat, American Airlines, Palantir, XL Fleet, Invitae, and General Electric.
Prosecutors claim Left’s manipulative practices were particularly effective in influencing retail investors, leading to substantial profits for himself through deception.
The Securities and Exchange Commission (SEC) has charged prominent activist short seller Andrew Left and his firm, Citron Capital, with orchestrating a $20 million fraud scheme.https://t.co/Cb90bQjRO2
— Cryptonews.com (@cryptonews) July 29, 2024
The SEC’s civil complaint is based on these accusations, alleging that Left and Citron Research engaged in a $20 million multi-year scheme to defraud followers by publishing false and misleading statements regarding stock trading recommendations.
The SEC claims that Left would make public recommendations to buy or sell stocks and then execute trades contrary to his advice, profiting from the resulting market movements.
In their lawsuit, the SEC quoted Left bragging to colleagues about the effectiveness of his statements, likening the ease of his profits to “taking candy from a baby.”
On Monday, July 29, Andrew Left surrendered in Los Angeles to face federal criminal securities fraud charges. A U.S. Attorney’s Office spokesman confirmed that Left would appear before Magistrate Judge Rozella Oliver at 4:30 p.m. ET in the U.S. District Court.
However, during the hearing, Judge Oliver established bail conditions, and Left was set to be released as he pleaded non-guilty to the charges leveled against him.
Initially, the prosecution demanded that Left post a $10 million cash deposit for his bail. However, according to a Bloomberg report, this demand was later revised to a $4 million unsecured bond and a $1 million collateralized bond, which Left must secure by August 5.
The prosecution, represented by Assistant U.S. Attorney Brett Sagel, argued that Left posed a flight risk due to his significant assets, which include more than $70 million and property abroad.
Sagel stated,
“He can walk out of this country and live a very luxurious life.”
Left’s lawyer, James Spertus, argued against the severe bail conditions, stating that Left was neither a flight risk nor a danger to the community and highlighting the lack of direct victims in the case.
Spertus insisted that Left should be released on his recognizance without any bond, arguing that:
“This should be Mr. Left released on his own recognizance. There’s no reason for any bond in this case.”
Spertus, who previously served as a prosecutor in the LA U.S. Attorney’s Office, vehemently defended Left, arguing that the prosecution’s case was fundamentally flawed.
He stated that Left’s public statements questioning the stock prices of various companies were often accurate and emphasized that Left had no legal obligation to maintain his trading positions in line with his public comments. Spertus asserted,
“You have no duty to the market to disclose your private trading intentions.”
He further criticized the government’s approach, suggesting that the prosecution aimed to deter activist short-sellers by targeting Left.
Spertus warned that such actions could chill the sharing of critical financial research, ultimately harming market transparency. He confidently believed Left’s innocence, stating,
“This case is going to fail for six independent reasons.”
Left has remained steadfast in his defense, refusing to consider a plea deal. Spertus explained that any plea deal would require Left to admit to unlawful conduct, which Left denies.
Spertus said, “There can’t be” a plea deal, noting that Left had offered to meet with prosecutors to explain why their theory of market manipulation was flawed, but the offer was declined.
Despite these arguments, Judge Oliver imposed the bail conditions and required Left to surrender his passport.
She also restricted his financial transactions to under $100,000 without special permission and limited his trading activities. Left’s trial was scheduled for September 24.
Andrew Left Amongst Other Short Sellers Targeting Crypto
Andrew Left has been a prominent figure in the world of short-selling, gaining notoriety for his critical research reports on overvalued companies.
His company, Citron Research, has previously targeted the cryptocurrency industry, advising investors to short Coinbase following a temporary outage on February 28. Due to its aggressive short-selling tactics, the firm has also faced criticism and legal challenges.
The case against Left is part of a broader effort by U.S. authorities to scrutinize the relationships between hedge funds and short-seller research firms. This scrutiny has intensified following the 2021 GameStop trading frenzy, which saw retail investors clash with institutional short-sellers.
Other short-seller firms, such as Culper Research and Kerrisdale Capital, have also targeted companies in the cryptocurrency sector.
For example, Kerrisdale Capital released a report on Bitcoin miner Riot Platforms, accusing the company of prioritizing energy arbitrage over generating shareholder value through crypto mining. These are among the few challenges crypto companies are facing.
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