Andrew Left of Citron Research faces SEC fine

Citron Research, known for its anti-crypto stance, has been hit with a fine from the US Securities and Exchange Commission. Andrew Left, founder and executive editor of Citron Research, faces SEC challenges for a $20M market manipulation scheme. 

Andrew Left, known for his stock-picking and profiling through Citron Research, is facing accusations of misleading investors. Left is a well-known producer of content on stock, with the sole goal of trashing companies. The recent charges happen after the conclusion of an almost year-long probe into the reports and trades of Citron Research.

Citron Research has published multiple reports, filling a niche known as ‘investor activism ‘, giving Andrew Left the nickname of ‘the bounty-hunter of Wall Street’.

Most of Left’s criticism was pointed at companies, where detailed research papers scrutinized their business model and financials. Left then set up short-selling orders on those companies, often profiting from the skeptical tone of the reviews. 

Today we charged activist short seller Andrew Left and his firm, Citron Capital LLC, for engaging in a $20 million scheme to defraud followers by publishing false and misleading statements regarding his supposed stock trading recommendations. For more: https://t.co/mukx1loy9h

— U.S. Securities and Exchange Commission (@SECGov) July 26, 2024

The publication of in-depth research itself is not illegal, but Citron Research used the papers and social media to convince investors to take up certain stock positions. Later, Left would trade against those positions. The bait-and-switch trading was efficient enough to lead to an estimated $16M to $20M in trading profits for Citron Research.

The illegal trading affected 23 company stocks, causing price swings of more than 12%. According to the SEC, the bait-and-switch trading happened on 26 occasions, using persuasive language to make buyers take the desired positions. In addition to sending out reports and social media messages, the SEC charges Citron Research with false representation as a solo actor. In fact, the research firm had entered into agreement with hedge funds when determining its message to smaller investors.

Andrew Left would buy up stocks that were sold on the recommendation of Citron Research, or sell right after sending out a message to recommend buying. Citron Research would often give specific price targets for holding a long position. In reality, selling began immediately, leaving investors to hold a devalued stock.

Citron Research failed to short crypto 

In the past couple of years, Citron Research moved onto crypto assets, again combining activism and research with shorting a selection of crypto. Left’s opinion is that any and all crypto projects were ‘a total fraud’, and he recommended shorting some of the assets.

Citron Research even tried its usual communication strategy on Ethereum during the bear market of 2023. The now-deleted tweet failed to move crypto holders, who did not follow the behavior of stock traders.

Citron Research ended up paying funding premiums to short some of the assets, unfortunately hitting the market bottom. Trying to short ETH led to an immediate rally, as crypto turned out much more volatile than Citron Research was used to.

In May 2024, Left also predicted Ethereum (ETH) would be deemed a security, when in reality the SEC decided the opposite thing. As of 2024, Left was not a complete crypto skeptic, going long on Bitcoin (BTC), while still being skeptical of ETH. 

Left also claimed Coinbase Global, Inc. (COIN) was overvalued as of May 16, when the stock price was at $199. Since then, COIN rallied to $265, while expanding the influence of its Base blockchain.

One of the notorious positions of Citron Research was a short on GameStop (GME), which led into one of the biggest short squeezes after the call of Roaring Kitty. Citron Research abandoned its short recommendation on GME in July.

GME also held some of the risks that were similar to crypto, mostly due to the irrational behavior of investors. The GME call of Reddit’s WallStreetBets did not follow the usual market logic, instead going as far as to ‘teach a lesson’ to the company’s short sellers. 

Where Citron Research failed with crypto and GME stock was in meeting internet communities that were not easily swayed by reports. As early as 2018, Citron Research already tried to attack Bitcoin (BTC), affecting the shares of Square, Inc. 

When it comes to crypto, Citron Research acquired a Jim Kramer fame, often used as a market bottom signal. But Left’s approach was also a failure when it came to Nvidia (NVDA), failing to predict the rise of AI and the irrational market response to a key company in the sector. 

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Cryptopolitan reporting by Hristina Vasileva