By Gabriel Joyce
US regulators level criminal fraud charges against activist short seller – Andrew Left and Citron Capital, triggering jubilation among GameStop fans.
The US Securities and Exchange Commission (SEC) confirmed charging Andrew Left and his firm, Citron Capital. The suit saw the US Department of Justice (DoJ) in the joint charges against GameStop’s leading short sellers.
The suit filed on Friday alleges Left and his firm orchestrated a multi-million dollar fraud. The filing prompted the video game retailers’ fans, alongside the Roaring Kitty’s cult, to celebrate.
SEC and DOJ Sue Citron Capital
The Gary Gensler-led SEC argues that Citron Capital and Left published false and erroneous statements regarding 2018-2020 stock recommendations.
The securities watchdog submitted that Left leveraged Citron’s newsletter in at least 26 incidents to advise on taking long and short positions. The agency added that the recommendations aligned with positions undertaken by Citron Capital and Left.
The recommendations saw the named stock price move on a 12% average. The stock movement would prompt the Left and the firm to reverse positions to benefit from such development.
Per the SEC complaint, the pattern saw Left and Citron Capital pocket $20 million. The defendant often brags to colleagues, likening the scheme to snatching ‘candy from the baby.’ Nonetheless, the complaint has not indicated that GameStop is among the stocks targeted in the scheme.
Left Exploits Citron Research Readers
In a press release, SEC regional director in Los Angeles, Kate Zoladz, affirmed that Andrew Left exploited his readers. The executive added that the defendant built trust he leveraged to induce them to execute trade founded upon pretenses. He could quickly reverse to profit from the price movements.
The SEC seeks multiple financial penalties from the defendants. Moreover, it seeks conduct-based injunctions, a penny stock bar, and an officer-and-director bar against the Left.
The DOJ complaint captures similar ground, though estimates the criminally fraudulent earnings at $16 million. The Justice Department pursues criminal charges separate from the civil punishment sought by the SEC.
The DOJ statement on Friday revealed that Left was previously a securities analyst and trader, besides guest commentary on CNBC and Fox Business channels.
Left faces 17 counts of securities manipulation, one on false statements and engaging in the fraud scheme. The prominent activist short-seller could face 25 years on the fraud scheme, 20 on each fraud count, and five for the false statements count.
Andrew Left Profile
Left is behind Citron Capital, a hedge fund, often known in Citron Research, that publishes a newsletter the activist short-seller authors and edits. Through the platform, Left earned the reputation of a notorious short-selling. GameStop (GME) is a notable stock Left took such a stance.
Short sellers bet against a specific stock by borrowing shares for instant sale. They do so, anticipating the price will decline so they can buy the dip.
GameStop fans recently termed short sellers villains in the meme stock saga for attempting to plunge the stock’s price. Left and Citron Capital emerged as the primary antagonists in such an effort.
Kieth Gill, best known as Roaring Kitty, spotted the trend and decried the hedge funds for their short-selling scheme. In turn, he rallied the Reddit WallStreetBets to acquire more shares, triggering a short squeeze. The incident compels the short sellers to buy the shares to settle their positions, thus fueling the price up.
The short-selling initiative saw Melvin Capital, involved in shorting GameStop, shut down owing to the damages suffered during the short squeeze. Citron Capital avoided the consequences, though a sworn enemy of Roaring Kitty’s cult emerged.
The discovery of the scheme saw the meme stock influencer followers express rage-fueled attacks to those opposing GameStop. A Reuters publication at the peak of 2021 meme stock mania revealed short sellers faced death threats.
Left would emerge unfazed by the death threats and short squeeze to further short GameStop. However, at the 2024 onset, he would abandon the GameStop short position amid a rally in the meme stock.
Citron Capital would concede to the market’s irrationality in an X post, though condemning the Roaring Kitty saga is insulting to the capital markets. The stance is perhaps grounds for why the GameStop enthusiasts within Reddit’s Superstonk community celebrated the charges.
Editorial credit: Artsaba Family / Shutterstock.com
