Andrew Left Made $21 Million Moving Stocks. A Jury Called It Securities Fraud. – Fraud Files Blog

Andrew Left made a career out of telling investors which stocks he thought were winners and losers, and people listened. That turned out to be very profitable for Left. A federal jury has now decided that some of those profits came from securities fraud.

Left, the founder of Citron Research, was convicted in June of one count of engaging in a securities fraud scheme and 12 counts of securities fraud. The government calls it “a long-running market manipulation scheme” and says he made at least $21 million from it between March 2018 and October 2023. Left had a large following on social media and regularly appeared on CNBC, Fox Business and Bloomberg Television. When he said a stock was overpriced or underpriced, people paid attention, and the market sometimes moved.

Prosecutors said Left figured out how to turn that influence into quick profits. He would establish a position in a stock and then publish commentary through Citron or discuss the company publicly. Investors would react, the stock price would move, and Left would quickly cash out. He also used short-dated options that could generate large profits from the quick price movements his commentary caused.

Making money after publicly recommending a stock isn’t automatically fraud. Investors can sell a stock they previously recommended, and they can change their minds. Short sellers can publicly explain why they think a company is overvalued and profit when the stock falls. But according to the evidence presented during Left’s 15-day trial, there was quite a bit more going on behind the scenes. Left sometimes placed orders to trade in the opposite direction of his public recommendation before he even made the recommendation.

One Nvidia trade is a great example of how this played out. In November 2018, Left messaged a portfolio manager about Nvidia and asked, “Do you want to make some fast money[.] Put together a thesis why nvda is oversold… We can destroy it… Just read the analyst notes from this past quarter and assemble the best of the ideas.”

Left then acquired positions that would benefit if Nvidia’s stock price increased. Citron announced on Twitter that it was buying Nvidia, saying the stock offered an appealing risk-reward and predicting, “We see $165 before we see $120.” Nvidia was trading at about $143.64 at the time. Less than two hours later, Left had sold all of the Nvidia positions he held before the tweet. The stock was trading around $150 to $151, well short of his $165 target. He made at least $960,000 on the trades.

Why is this activity a problem? Because the government said he intended to induce other investors to trade based on his representations about the investment, yet what he represented did not match his actual trading intentions.

The government presented other evidence that Left’s public statements didn’t always match what he was doing with his own money. In one case, after calling a company a “fraud” on CNBC’s Fast Money, Left said he had covered only a “small size” of his position. He had actually closed most of the position earlier that day. Prosecutors also said Left concealed financial relationships with hedge funds and tried to disguise some of those relationships through fabricated invoices and payments routed through a third party.

Andrew Left says that he did nothing wrong. His attorneys argued that he genuinely believed his investment recommendations and that investors are free to change their positions whenever they want. After the verdict, Left said he had not made false statements and vowed to continue fighting the case.

The Citron case raises an interesting question about where aggressive investing and financial commentary end and market manipulation begins. Short sellers play an important role in the markets, particularly when they uncover fraud, accounting problems and wildly overvalued companies. Someone who publishes a negative report about a company and profits from a resulting decline in its stock price hasn’t necessarily done anything wrong.

But prosecutors had much more than Left’s public recommendations and the trades that followed them. They had his trading records, options positions, limit orders, private messages, communications with hedge funds and public statements. They could put all of it on a timeline and compare what Left was telling investors with what he was actually doing with his own money. That’s the sort of evidence that can make a financial fraud case compelling. People can explain away words and argue about what someone meant. Transactions and their timing are much harder to explain away.

Left is scheduled to be sentenced on December 1. He faces a statutory maximum of 25 years in federal prison on the securities fraud scheme count, although his actual sentence will be determined under federal sentencing rules and other factors considered by the judge.