How about them apples?

[aws]

It would be nice if there were bright lines for what's allowed in trading against your public statements or filings. Both for people with connections to get on TV, as well as just anyone with a big enough following to move markets.

 

Obviously this is a pretty egregious example, where he's covering shorts two minutes after blasting off tweets, but this kind of crap happens all the time. It gets more attention since it's short selling and that's many people's favorite bogeymen, but I imagine the problem is 100x worse with pump and dumps in micro cap stocks and crypto. Apparently it's just straight up legal to pump and dump according to at least one judge as laid out by a recent Patrick Boyle video:

 

https://www.youtube.com/watch?v=UqWHiMBBNGM

[ValueArb]

19 hours ago, aws said:

It would be nice if there were bright lines for what's allowed in trading against your public statements or filings. Both for people with connections to get on TV, as well as just anyone with a big enough following to move markets.

 

Obviously this is a pretty egregious example, where he's covering shorts two minutes after blasting off tweets, but this kind of crap happens all the time. It gets more attention since it's short selling and that's many people's favorite bogeymen, but I imagine the problem is 100x worse with pump and dumps in micro cap stocks and crypto. Apparently it's just straight up legal to pump and dump according to at least one judge as laid out by a recent Patrick Boyle video:

 

https://www.youtube.com/watch?v=UqWHiMBBNGM

 

I really don't have any issue with people immediately trading a position they touted. I'd rather a thousand scammers go free than an innocent get crucified. Investing is almost exclusively "buyer beware" and if you trade without doing your own research I don't have much sympathy.  Trying to set arbitrary rules like "you have to wait 3 days" or "1 hour" is just useless regulation that won't protect anyone and will be used to harass those trying to operating ethically just as sure as it will be those who aren't. 

 

But that said, I hadn't read Matt Levines last column before I posted my milquetoast support for Andrew Left, and it includes damning details the SEC press release didn't. To me the red line is when an investor issues statements claiming X is worth $Y, and publicly states they are going to hold until then or another price target but secretly dumps before then.  I don't care if you think $10 stock X is worthless and close your short at $9 immediately after publicly releasing your research, that's all consistent with your belief and whatever risk management you use or short term gains you want to capture. But if you say you aren't going to sell until $5 and sell at $9, that's misleading on its face and potential evidence of fraud. And its obvious fraud if you get caught privately telling partners that your research is bullshit, you are just trying to move the stock for a quick gain. 

 

So this is what Levine reports the SEC has alleged.

 

Quote

 

"  Left was long one stock, Invitae Corp., and “discussed with his colleague his hope to ‘get stock to 30’ and asked ‘[w]hat can I put in a tweet to juice it[?]’” Eventually he tweeted that he was “certain that Invitae is on its way to $100” and “will continue to stay long until the stock hits at least $65 as we believe it is on its way to $100.” He sold that day at $27 to $28."

 

"During Left’s CNBC interview, the interviewer repeatedly asked him if he continued to hold a short position in CRON: “what’s relevant to people watching is, are you just as short the stock right now as you were at the beginning of the day.” Left responded that he “took a small size position off today but I am still extremely short the stock,” and reiterated his recommendation that the stock would trade to $3.50.

 

This statement was materially false and misleading because, by the time of that interview, Left had exited more than 75% of his short exposure at well above $3.50, despite representing to his readers that this was the true valuation of the company."

 

 

Public shorts should get a complete liability waiver if they report all your trades honestly and quickly, like within 24 hours. Then it doesn't matter if they think that $10 stock is worthless but took risk off the table covering at $9 for a quick gain. The public has all the information they need to judge whether to give their report any weight, or to heavily discount it. 

[ValueArb]

That said the SEC complaint sure complains a lot of allegations that seem to be perfectly normal and reasonable trading behavior.

 

Quote

As further alleged in the indictment, in the leadup to publication of Citron’s commentary, Left established long or short positions in the public company on which he was commenting in his trading accounts and prepared to quickly close those positions post-publication and take profits on the short-term price movement caused by his commentary. Left allegedly used his advance knowledge and control over the timing of a market-moving event to build his positions using inexpensive, short-dated options contracts that expired from the same day that he published his commentary to within five days. Left also allegedly submitted limit orders, often prior to publication of his commentary, to close his positions as soon as the company’s shares reached a certain price and at prices vastly different from the target prices that Left recommended to the public.”

 

I mean! If you believe my arguments that closing out the position can be okay, then putting in limit orders in advance is also fine. Kind of looks bad though.

 

Quote

Citron and Left’s “lack of a reasonable basis in selecting target prices further demonstrates their lack of belief in those prices,” says the SEC. Also there’s a weird story about a company called VUZI, where Left bought some stock and then tweeted that he was *not short*: ““Getting emails about shorting $VUZI. NO WAY we would short this flyer. Small market cap with story that is tied to 5G, $AMZN and $PLUG and Covid. There has to be easier pickings...still doing research. Risk/Reward easier on other high flyers.” The stock went up. Then his associated did some due diligence and decided “we can’t have enough conviction in this being an actual long,” so they sold. The SEC thinks this is fraud but … I mean … it was all true, no?

 

[Gregmal]

I still don’t get why we are overlooking the simple fact that no one is forcing anyone to go on TV or start mouthing off on Twitter….if you choose to, shouldn’t there be a higher standard for at least not being a total liar than if you don’t?

[ValueArb]

1 hour ago, Gregmal said:

I still don’t get why we are overlooking the simple fact that no one is forcing anyone to go on TV or start mouthing off on Twitter….if you choose to, shouldn’t there be a higher standard for at least not being a total liar than if you don’t?

 

We have a constitution right to freedom of speech. So it should never be actionable if you honestly believe the recommendations you make, even if you are wrong, even if you made mistakes and even if you change your mind soon after.

 

It should only be illegal if you are intentionally lying in order to profit from the trading action. Which it already is, that's fraud. 

 

So what's specifically wrong with the current laws and how would you want them tightened up?

[Gregmal]

Free speech is fine, going on a public platform to peddle a scheme is different. I don’t think it’s crazy to say, IF YOU choose to go on some public platform, you have a different set of rules 

[Gregmal]

Like don’t financial advisors have these exact sort of rules about things like communications with the public, social media usage, advertising, etc? Yet these unregistered hedge fund types get to skirt the spirit of all these rules? 

[Spekulatius]

6 minutes ago, Gregmal said:

Like don’t financial advisors have these exact sort of rules about things like communications with the public, social media usage, advertising, etc? Yet these unregistered hedge fund types get to skirt the spirit of all these rules? 

But these hedge funds don’t advise you. You are not their client. They have fiduciary duty to their client, not you.

We have brokerage reports that get distributed to clients before they hit the newswire and that in some cases clearly move stocks coming out pretty much every day. We have Cathy Woods with their whacky forecasts and even return targets, Elon Musk pumping Tesla stocks and  otherwise talking his book. The list goes on and on.

[Gregmal]

1 minute ago, Spekulatius said:

But these hedge funds don’t advise you. You are not their client. They have fiduciary duty to their client, not you.

We have brokerage reports that get distributed to clients before they hit the newswire and that in some cases clearly move stocks coming out pretty much every day. We have Cathy Woods with their whacky forecasts and even return targets, Elon Musk pumping Tesla stocks and  otherwise talking his book. The list goes on and on.

That’s not the point though. Financial professionals have very specific rules regarding conduct and disclosure when dealing with the public. Has nothing to do with their clients or fiduciary responsibility. 

[Mephistopheles]

I like seeing these people use media to move the stock. Creates more volatility, inefficiency and opportunity.

 

I made good money off of selling puts on GME.
 

No rules and free for all is how it should be, unless you’re specifically hurting the reputation of a company. Like, who cares about the stock price movement, care more about reputation hit to the company (ie causing a bank run). That should be the focus. 
 

All market participants should know the rules of the game with pump and dump. 

Edited July 28 by Mephistopheles

[John Hjorth]

On 7/26/2024 at 2:37 PM, Gregmal said:

https://www.cnbc.com/2024/07/26/short-seller-andrew-left-charged-with-fraud-by-prosecutors-sec.html
 

If this is a new approach to enforcement, can only imagine the other guys out there shitting in their expensive suits right now. 

 

A contribution to the discussion :

 

Bloomberg - Opinion - Matt Levine, columnist [July 26^th 2024] : Andrew Left Wasn’t Short for Long.

 

To me, it's quite complicated, because the issue at hand has so many dimensions.

 

Basically it roots down to the concept and societal definition of making a decent living, and the contrary of that, fraudulent business activities [being a con person], and how these concepts are reflected in aplicable law [ as 'jus'].

 

Over time the general societal norms for acceptable behavior is expressed in appliable law , with applicable law by time lagging  societal norms for accepteable behavior, and political based legislation and case law creating new or changed prejudice as some kind of framework filler or specific intepretor or testarangement.

 

- - - o 0 o - - -

 

So the question at hand - to us, individually and personally - is if Andrew Lefts activities at Citron Research are acceptable, acknowledgeable or even noble and useful with a real purpose considering the facts presented under the case tested by SEC, or not.

 

Personally, I have nothing but resentment left for these kind of business practices.

[SharperDingaan]

Just another day during the 'good old days' of the VSE 

Nobody can make anything on these things unless they control the box, and they are most vulnerable just before the pump is launched. Blow the box apart, collapse the track record, and their creditors will do the rest. Thereafter, make a bulk offer for the now dud inventory .... and take over the box 

 

As with everything else there are a few very good at this; they pay a fee, and are left to keep the rest in line. Regulation just done a different way, and far more effective than it might otherwise be. 

 

SD 

 

[DooDiligence]

I just watched the first few episodes of the Partridge Family. In the 2nd episode, Shirley had a minor fender bender with the bus, which turned into a lawsuit (Colonel Potter shows up in a neck brace). Trial attorneys were characterized as "ambulance chasers" and their clients as "whiplash artists". This was a fairly accurate societal perception at the time.

 

This episode came out in 1970, before the 1977 Bates vs State Bar of Arizona decision, which allowed lawyers to start advertising. Now they're respectable and openly solicit business for "slip and fall" cases while running a chorus of, "One call, that's all" and "We really are on this big truck". How's that for a switch in public sentiment? NTM the corresponding transfer of wealth. Higher premiums anyone?

 

https://www.imdb.com/title/tt0670203/

 

A buddy of mine put Morris Bart's number down as his emergency contact when we applied at a LA marine transportation company (we both got hired).

Edited July 28 by DooDiligence

[Gregmal]

The statements from his lawyer are amazing. Tells you all you really need to know...its basically "well, theres nothing that legally requires him to be honest"....fucking weasel in a suit. 

[thepupil]

1 hour ago, Gregmal said:

The statements from his lawyer are amazing. Tells you all you really need to know...its basically "well, theres nothing that legally requires him to be honest"....fucking weasel in a suit. 

can you point me to what you are reading? all i can find is the below.

 

I have the opposite impression from this. defense is basically "he was right on the companies in most cases" and "no need to disclose trades", with which i agree. 

 

https://www.cnbc.com/2024/07/29/andrew-left-citron-capital-securities-fraud-los-angeles.html

 

Quote

Spertus, who previously was a prosecutor in the LA U.S. Attorney’s Office, told CNBC on Monday, “This case is going to fail for six independent reasons.”

Spertus said Left’s public statements questioning the stock prices of various companies, arguing that they were inflated, were the vast majority of time proven to be accurate. He also said Left did not have an obligation to anyone to hold a trading position in a stock until the target price he had announced was reached, which the lawyer said undercuts the prosecution’s theory in the case.

“You have no duty to the market to disclose your private trading intentions,” Spertus said.

He said Left would “never” accept a plea deal from prosecutors, whom he said had refused Left’s offer to meet with them to explain why “their theory of market manipulation was deficient on its face.”

“There can’t be” a plea deal, Spertus said, noting that any such deal would require Left to tell a judge what he had done that was unlawful. In this case, the lawyer said, Left had done no such thing.

Spertus also said he believed the Department of Justice in prosecuting Left “is trying to deter the activist short sellers, and they want to stop it.”

Regardless of whether Left is convicted or acquitted, Spertus said, the case will have a chilling effect on short sellers sharing their research about purportedly overvalued companies or ones whose stock price is based on misstatements.

“People will stop sharing their research with the market,” Spertus said. “It’s really bad for the financial markets to have a prosecution like this when the government agrees that the public statements were truthful.”

 

[Gregmal]

31 minutes ago, thepupil said:

He also said Left did not have an obligation to anyone to hold a trading position in a stock until the target price he had announced was reached, which the lawyer said undercuts the prosecution’s theory in the case.

“You have no duty to the market to disclose your private trading intentions,” Spertus said.

This is pure legal BS(correct in terms of the letter of the law even)....if we translate this into layman's terms, its essentially..."he can say whatever he wants and trade against the same stuff he is saying because its not illegal" and "the law doesnt require him to be honest".

 

If we want to defend publicly shouting that a $26 stock is worth $65/100 and then validate the guy selling at $28 moments later despite ZERO fundamental events occurring, while same weasel is laughing to his peers about it being easier than "taking candy from a baby"...because of "first amendment" and "technicalities" that dont consider ethics...be my guest. This is total scumbag behavior. 

[thepupil]

okay. just wanted to make sure we're looking at same thing. don't expect us to agree on this. 

 

 

 

[Gregmal]

I dont see why there isnt middle ground. I agree no one should have to disclose their trading position, in a vacuum. Nobody should be bound by their own price target parameters either.

 

What I have a hard time seeing, is how people dont seem to agree that the above can be true, while acknowledging the obvious issue of someone playing those cards, AFTER they sought out TV appearances and publicly trumpeted "their price targets and trading intentions" WHEN THEY WERENT REQUIRED TO EITHER! Is this really just a license to lie for profit?

 

 

If this guy did these things, without going on TV or mouthing off publicly...Id say the charges are bogus. Thats the difference. No one forced him to perpetuate the fraud and lies he did. He chose to. Are we really gonna debate the absurdity of taking a position at $26, saying its worth $100 and that you won't sell til $65, and then selling moments later at $28? WTF???

Edited July 30 by Gregmal

[thepupil]

26 minutes ago, Gregmal said:

Are we really gonna debate the absurdity of taking a position at $26, saying its worth $100 and that you won't sell til $65, and then selling moments later at $28? WTF???

 

yes. 2/26 = 7.6%. Making 7.6% in a day is a better IRR than making 3.5x in say 3-5 years...IF you have enough ideas to reinvest at similarly insane IRR's, perfectly reasonable to close out that day. Let's say Andrew's skill/podium were good for 7% every 2 months. in two years that's 125% return while only being exposed to one company on a fraction of trading days. he made a fair bit of money using only is own capital so it was effective, potentially even rational to monetize the short term moves in the stock. Saying something is worth $100 to the public does not carry any obligation to hold it to $100. 

 

one could certainly argue that it's 100% rational to do what he did and take the better risk adjusted returns particularly given the path dependency of shorting and degree tow which most ideas were shorts.  

 

that's what concerns me about this. the SEC seems to have made portfolio management a crime. if 5-10% in a day is too small a move, then what's the line? what about 20% in a week? a month? 3 months? to my knowledge the SEC has not mandated a holding period for a position on which you state an opinion of intrinsic value. nor should they. 

 

should one be penalized for effectively moving the market? no. if you say something false or just make shit up to try to then yes (which is my understanding of the law in place). the SEC seems to be shifting that with this case. I think SEC just doesn't like activist shortselling and needs something to show for their investigations these last three years. And there are clear instances where Left did lie...but not really about stocks, about stuff like not being compensated by HFs or implying that he managed external capital when he didn't. there I think it's more clear cut, but those don't strike me as serious as the other allegations. 

 

about the companies themselves, the SEC offers very little in their complaint regarding him saying untruthful things. as some bloggers and matt levinge have pointed out, he was often right (and sometimes wrong) in his analysis of companies, like any of us. 

 

 

 

 

 

 

[Gregmal]

I’m honestly at a loss for how to even respond to that. It’s always been known that it’s easy to get rich, especially on Wall Street, if you lack integrity/ethics. Relabeling it “risk management” or whatever doesn’t change that. Obviously people like Left are fine behaving like that.
 

I’d love to see Buffett tweet about a stock and then sell it 3 minutes later and write in his annual letters about how “he prudently managed risk”, to the detriment of his inner scorecard and reputation, for a risk free 7.5%. 

[Gregmal]

Like I’d have zero issue if this dirtbag kept to himself and sold at $28 after buying at $26. 
 

Or if he got on tv and said, I think it’s worth $100 but will sell at $28….but he deliberately chose to be dishonest and misleading in every aspect. 
 

If it’s at $26 and you’re willing to sell at $28…why even go public? Oh….because misleading people is the thesis…like taking candy from a baby.

Edited July 30 by Gregmal

[thepupil]

it's not a question of ethics though is it? the law does not mandate ethics. it mandates following the law.  what you or I consider distasteful doesn't matter, right? no one faces 20 years of jail time for cheating on one's spouse, even if it is unethical. 

 

I doubt that I'd like to spend any time with Left or have him marry my sister. lots of people do unethical things (some of what Left did I take issue with, some i do not), but not all of them are publicly charged by our government and facing up to 20 years in jail. e can't arbitrarily redefine what market manipulation is just because we don't like someone or don't like their investment strategy. that's what it feels like to me is happening here and that's why I hope he successfully defends himself. 

 

also I do agree with the critics that this will certainly silence potential short activists who are already the subject of enough persecution by companies and regulators. It feels the SEC is hollowing out a community that in aggregate likely does more to bring down bad companies than the SEC itself does. 

 

 

[thepupil]

18 minutes ago, Gregmal said:

Like I’d have zero issue if this dirtbag kept to himself and sold at $28 after buying at $26. 
 

Or if he got on tv and said, I think it’s worth $100 but will sell at $28….but he deliberately chose to be dishonest and misleading in every aspect. 
 

If it’s at $26 and you’re willing to sell at $28…why even go public? Oh….because misleading people is the thesis…like taking candy from a baby.

yes, we agree here, he should not have lied about "staying long until X" and sold it that day. he should not have said he didn't take compensation from any HF's when in fact he did. he should not have said he managed external capital when he didn't (or implied it, unclear to me he actually said it).

 

 

he definitely lied a few times, but much of the complaint seem very weak and has pretty big implications for anyone who speaks publicly about stocks with any kind of specificity. 

Edited July 30 by thepupil

[ValueArb]

3 hours ago, Gregmal said:

 

 

 

If this guy did these things, without going on TV or mouthing off publicly...Id say the charges are bogus. Thats the difference. No one forced him to perpetuate the fraud and lies he did. He chose to. Are we really gonna debate the absurdity of taking a position at $26, saying its worth $100 and that you won't sell til $65, and then selling moments later at $28? WTF???

 

Where do we draw the red line? Can he sell at $28 the next day? The next week? Can he sell at $60 moments later? $40? $30? Can he sell moments later at $28 if he's found a much better investment he needs to fund? Or for a margin call? Or for a personal emergency?

 

What's so special about $28 and moments later? Who decides and how?

 

You are 100% correct that his behavior was scummy and unethical. I just don't want to criminalize speech or have more of my tax dollars spent harassing people just because they are perceived to be unethical, as we imprison far too many people in this country already for victimless crimes.

 

And I certainly don't want the SEC/DOJ to decide these things. Their approach has always been to never have a "bright line" defined in securities laws because they don't want people to be able to be comfortable when too close to it. In this situation they would just want a vague legal ruling or regulation that says it can sometimes be fraud if you sell your publicly touted position too quickly or before it reaches your public price target. That way they can sue the guy who sold at $28 moments after being on TV, while threatening to sue the guy who sells at $40 after hours when a massive spike occurs after their appearance, and also threaten to sue the guy who waited months to take profits at $98. That way the SEC can use fear of prosecution to force investors to stay far away from the line, even if their behavior is clearly reasonable.

 

One of my favorite stories about the SEC is that it has always resisted a strict definition of insider trading, preferring the latitude to define it as they see fit and pushing to broaden their definitions to absurd levels whenever possible. In a case filed long ago, maybe 50 years, the SEC argued that if you were a passenger on a plane landing in Rochester New York, where you witness IBM's main computer factory explode in flames as your plane lands, if you rushed to a pay phone to short IBM stock you were guilty of insider trading.

 

These kind of vague legal threats backed by the full might of the federal government are everything I hate. They can easily be applied unfairly, the SEC can give favored actors (favored either by SEC lawyers, important congress critters, or the administration) a clean sheet for their actions, while relentlessly pursuing anyone who is unpopular with them or who is just unpopular with potential voters like the mass of retail investors. Thats one reason this prosecution is so suspect, retail pumpers have been demonizing short selling even more than usual the last few years, so targeting a prominent short seller is just good politics, especially just before the election. That in itself explains why the indictment uses such speculative legal theories and is so weak on actual evidence of crime beyond lying to investigators. 

 

I'd rather shut down the SEC than to allow them to continue to wield such great power under such vague and arbitrary rules.

Edited July 30 by ValueArb

[ValueArb]

In this section, Matt Levine makes the point that the important point is that investors should only care whether Left was genuine in his research conclusions, that they probably don't care whether he dumped or not. And I agree. Its a little scummy that he may immediately sell but if I was buying into the short my only care is whether the thesis is correct and supported by good research, I'll make my own entry/exit calls. Criminalizing his claims over what he owns/held/sold doesn't help investors at all and in fact hurts them because it will be used to deter short sellers from promoting short opportunities.

 

Quote

 

As I wrote on Friday: That seems fine? I mean, it would be fine if Left was explicit about it, and also probably fine if he was, you know, implicit about it. Put some fine print in the reports saying “we can cover at any time,” leave it at that, take some profits. But what annoys the authorities is that Left allegedly lied about it, telling people on Twitter and television that he was still short even after he had covered. 

 

I can see why this would be annoying, and fraud. But it strikes me as a secondary issue; to me, the primary issue is: Was he right? Like, if he published short reports saying “Company X is a fraud,” and then the stock dropped, and then he covered his shorts, and then a few months later Company X was shut down for fraud, then … I would be inclined to give him the benefit of the doubt? Even if he was lying about still being short?

Because I think the point here is that it’s securities fraud if he deceived people about some material fact. If people went around thinking “I need to be in the same trades Andrew Left,” and he said “I shorted Company X and am still short right this minute and will stay short for months,” and they believed him about his position, so they shorted Company X, and actually he had already bought back his short, then that would be fraud about a material fact.

 

But I don’t think that happened? I think that happened is that people went around thinking “Andrew Left has a good track record of finding stocks to short,” and he said “Company X is a fraud and I am short,” and they believed him about Company X, so they shorted Company X. And then if he was honest and diligent and mostly correct about Company X being a fraud, then, you know, kind of no harm no foul? Even if he covered his shorts immediately?