Citron Research founder Andrew Left coordinated with hedge funds on stocks he planned to short and bragged his “hot voice” with retail investors meant they could “take candy from a baby,” according to emails presented at his criminal trial on United States securities fraud charges.
In August 2018, Left told Sunny Puri at Anson Advisors Inc. that smaller retail stocks were best for taking short positions and recommended doing so with Canadian cannabis distributor Cronos Group Inc., according to messages the FBI collected from Left’s iPhone and Telegram account that were shown to jurors Thursday in Los Angeles federal court.
“I have a hot voice in cannabis let’s take advantage of it,” Left said in one exchange. Days later, Left published a report recommending investors short Cronos, and the shares plunged. Afterward, Left told Puri that the stock was mostly held by retail investors, and “now that I know who owns it, candy from a baby.”
Prosecutors accuse Left, 55, of using explosive social-media posts about dozens of companies to illegally move their stock and make a quick profit. He denies wrongdoing. The trial is putting a spotlight on the short-selling industry, where Left is one of the most prominent players.
The messages presented to jurors Thursday showed Left and Puri deliberated about whether to go long on one stock or short another — Cronos — which Puri said he found interesting. Later, Puri sent Left a draft of a short report on Citron’s letterhead, with a price target of US$7.50, below where it was trading at around US$12.
Coordination by hedge funds and researchers has long irked company executives and sympathetic policymakers who worry that such firms could also place parallel bets, putting more downward pressure on stock prices they deem overvalued. While such behaviour can be perfectly legal, short sellers tend to keep it secret, especially as companies have increasingly responded to research with litigation and as regulators poke around.
The U.S. Justice Department and Securities and Exchange Commission have been investigating for years whether some practices with short sellers amount to market manipulation.
Investor Testimony
Earlier in the day, jurors heard from two individual investors who testified how their savings had been affected by Left’s reports urging people to short cannabis stocks.
Adam Gray, a car salesman from Ohio, testified about his experience trading stocks when Left issued his short on Cronos. Gray said that as a retail investor he followed Left’s tweets and reports closely, but was spooked by the 2018 report about Cronos, which he said triggered a wider selloff of cannabis stocks.
“I got scared,” said Gray, who owned cannabis stocks other than Cronos. Later Thursday, another investor said that a Left report made him terrified.
Left said in the 2018 report that Cronos was overvalued. Gray said he filed a complaint with the SEC because he felt that Left didn’t mention Cronos had obtained additional land to grow cannabis. “I felt like the most important thing about Cronos was left out, and I feel like it should have been put in there,” he said.
