Andrew Left, the founder of Citron Research, at the Reuters Global Investment 2019 Outlook Summit in New York, in 2018. The investment influencer now faces a potential 25-year prison sentence.BRENDAN MCDERMID/Reuters
Short seller Andrew Left, a familiar face in Canadian markets, faces serious jail time because he couldn’t resist bragging about how he ripped off investors.
In words that helped convict the founder of Citron Research on 13 of 17 criminal charges, Mr. Left wrote to a confidant in 2018 to say manipulating his retail followers’ trades in Toronto-based cannabis company Cronos Group Inc. was “like taking candy from a baby.”
On Monday, a jury in Los Angeles took Mr. Left to task for years of swiping sweets through social-media campaigns and TV appearances that spotlighted stocks he claimed were poised to crash, including Cronos, Quebec-based Valeant Pharmaceuticals and Shopify Inc., the country’s largest tech play, or companies he deemed poised for takeoff such as Nvidia Corp.
U.S. prosecutors proved the fund manager broke the rules by making related buy and sell recommendations, often in online research reports, then failing to disclose his own trading.
Anyone who makes investment decisions based, even in part, on what supposed market insiders like Mr. Left are saying on social media or TV needs to give their head a shake. Why would veteran investors give away their insights for free?
There’s an old saying at poker games – if you can’t figure out who the sucker is at the table, you’re the sucker. That’s how Mr. Left treated his audience.
Shopify co-founder Tobi Lütke was on the right track when he called Mr. Left a “short-selling troll” during Citron’s 2017 campaign against the e-commerce company.
Mr. Left’s strategies included short selling, which sees an investor borrow stocks and sell them in anticipation of buying the shares back at a lower price and pocketing the difference as profit.
While Mr. Left was telling his 300,000-plus followers on X – formerly Twitter – to sell, he was buying. Often within minutes of making a recommendation. When Citron Research told retail investors to buy, he sold his positions into the resulting jump in the stock’s price.
U.S. prosecutors alleged these “short-and-distort” campaigns earned Mr. Left about US$21-million. He now faces a potential 25-year prison sentence. Mr. Left is expected to appeal the ruling.
“Andrew Left used his expertise to profit at the expense of retail investors, ordinary people who owned the stocks he targeted,” Tysen Duva, assistant attorney-general in the U.S. Justice Department’s criminal division, said in a press release on Tuesday.
Mr. Left’s lawyers argued – unsuccessfully – that the fund manager was just a “publisher” who believed in what he wrote or said. They claimed his audience understood Mr. Left traded in the stocks he targeted.
That line of reasoning failed to sway a Los Angeles jury. Over a three week trial, they bought into U.S. prosecutor Bill Essayli’s argument that “Left used his TV appearances to disguise his intentions, manipulate the stock market and pad his pockets.”
In 2024, when U.S. prosecutors initially filed charges against Mr. Left, market watchers predicted the move would chill aggressive short-selling tactics such as publishing negative reports.
Those predictions are proving prescient. Some of Citron’s former clients, including Toronto-based hedge fund Anson Advisors Inc., have distanced themselves from Mr. Left.
In 2024, Anson struck a settlement with the U.S. Securities and Exchange Commission, paying the regulator US$2.25-million to settle allegations it failed to tell its investors how it was working with Citron on short-selling campaigns targeting companies such as Canadian Securities Exchange-listed Namaste Technologies Inc., now called Lifeist Wellness Inc.
The SEC settlement came as Anson chair and chief investment officer Moez Kassam successfully expanded the platform from its roots as a short-selling fund to a multi-strategy asset manager, with colleagues who run portfolios focused on real estate investments and activist campaigns.
Anson seemed to recognize Mr. Left’s short-and-distort tactics were no way to build long-term wealth.
Monday’s U.S. court decision, showing Citron’s founder was consistently on the other side of trades he recommended to his followers, should convince retail shareholders to steer clear of any supposedly free advice they are getting from the market gurus popping up on social media.