SEC charges Citron Capital, Andrew Left for $20 million stock recommendation scheme

The U.S. Securities and Exchange Commission announced charges against activist short seller Andrew Left and his short seller firm, Citron Capital, for engaging in a $20 million multiyear scheme to defraud followers by publishing false and misleading statements regarding his supposed stock trading recommendations.

Citron claimed to be an independent research outlet, but the company had secret deals with hedge funds.

The SEC’s complaint alleges that Left used his Citron Research website and related social media platforms on at least 26 occasions to publicly recommend taking long or short positions in 23 companies and held out the positions as consistent with his own and Citron Capital’s positions. The SEC wants to bar Left from offering or selling penny stocks and from acting as or being associated with any investment adviser. It also wants Left to disgorge all funds received from the scheme and impose civil penalties.

Moving the price needle

The complaint alleges that following Left’s recommendations, the price of the target stocks moved more than 12% on average.

In other words, 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.

“Andrew Left took advantage of his readers. He built their trust and induced them to trade on false pretenses so that he could quickly reverse direction and profit from the price moves following his reports,” said Kate Zoladz, Director of the SEC’s Los Angeles Regional Office. “We uncovered these alleged bait-and-switch tactics, which netted Left and his firm $20 million in ill-gotten profits, and we intend to hold Left and his firm accountable for their actions.”

In June, the SEC previously settled charges against Anson Funds Management LP and Toronto-based exempt reporting adviser Anson Advisors Inc. for conduct involving Left and other short publishers.  Green Market Report previously wrote about the scheme, although Anson Advisors prefers the term arrangement and not scheme, that included a secret deal between Anson Funds and Citron where Anson Advisors and the short seller worked together to prepare bearish reports on two cannabis companies – Namaste Technologies and India Globalization.

The reports combined, with tweets on Namaste Technologies, were published in September and October 2018. In exchange, Anson Advisors agreed to pay the short publisher a share of AIMF’s profits from its short position in Namaste. AIMF’s short positions in Namaste generated approximately $3.8 million in profits according to the SEC.

Citron was a fake

The latest complaint stated that Citron Capital posted purported “investor letters” to create the false impression that it was a successful hedge fund, when in fact Citron Capital never had any outside investors. Left simply used Citron Capital to trade his own money.

Left also created phony invoices for “consulting services” that he did not provide to conceal that he was getting more than $1 million from a hedge fund in exchange for Citron Research publishing certain reports and tweets. In addition, Left created a website, namastetruth.com, and posted negative information on Namaste. He told Anson he would take the site up and down depending on the price of the stock.

They also used price targets to give the impression that the stock would drastically move in the direction of their recommendation and to attract media attention that would amplify their recommendations. The website hailed that Left had been “quoted in every major US financial publication, including Forbes, Fortune, Wall Street Journal, Barron’s, CNBC, Investors’ Business Daily, and Business Week.”

The SEC said that Left bragged to colleagues that some of these statements were especially effective at inducing retail investors to trade based on his recommendations and said that it was like taking “candy from a baby.”

Indeed, Left was disdainful of many retail traders according to the complaint. He called Canadians gullible and bragged that “these retail holders are nervous. we will hit them.”

Cannabis company fallout

Namaste Technologies changed its name in 2021 to Lifeist Wellness (OTC: LFSWF). The company said that it was exploring legal options regarding the settlement.

“We were shocked and dismayed at the enumeration of the sanctioned activities in the SEC’s published settlement order,” Lifeist’s CEO, Meni Morim, said. “We have long suspected that something untoward might be happening in the market internals and trade patterns of our common shares but never had any concrete evidence thereof. Now that we do, we are exploring all options on behalf of shareholders.”

The other company involved in the scheme, India Globalization Capital, changed its name to IGC Pharma (NYSE: IGC) in March 2023. It had its own issues with the SEC when, in 2020, it settled charges against its CEO, Ramachandra “Ram” Mukunda, for misstating in a press release that its first cannabis-based product was ready for sale. In June, the company reported $1.3 million in revenue for fiscal 2024, representing an increase from the $911,000 generated in fiscal 2023.