Prosecutors in Andrew Left's securities fraud trial say the prominent short-seller wasn't always working alone.
Left, prosecutors said in court on Tuesday, was also working with hedge funds and sharing in some of their trading profits. They accused him of concealing those relationships from retail investors in order to "maintain the illusion of Citron's independence."
In a text message exchange with a hedge fund portfolio manager that was revealed in court on Tuesday, Left described one short trade as taking "candy from a baby," referring to retail investors.
Prosecutors have accused Left, founder of Citron Research and a familiar face on financial TV news shows, of using his prominence to manipulate the market and deceive everyday stock buyers, earning more than $20 million in the process. The trial is examining what a short-seller is allowed to say and do.
Eliza Goldberg, a chief compliance officer at Atom, a Texas-based hedge fund, testified in the Los Angeles federal court on Tuesday that Left was paid more than $2.6 million by the fund for providing trading recommendations.
Prosecutors, who say Left hid that work from retail investors, said some of those payments were made weeks before Left published a report criticizing another activist short-seller's work with a hedge fund.
In August 2019, Harry Markopolos, the famous whistleblower of the Bernie Madoff scandal, issued a short report on General Electric, accusing it of fraud "bigger than Enron."
Left issued a rebuttal tweet and report, calling Markopolos' credibility into question.
"As noted in the disclaimer on his site, Harry is being paid a % of profits from an unnamed hedge fund that is short GE," Left wrote in the report. "No credible hedge fund or short seller would ever do this."
Left's report also said regarding his own activity, that Citron had never been paid to publish research and that "compensation tied to the 'success of a trade' would not pass internal compliance nor would it pass compliance of any fund that Citron would collaborate with on ideas."
Left's defense suggested his claims about Markopolos' work with a hedge fund were not a one-to-one comparison with Left's. They've argued that there was no rule or law preventing Left from working with a hedge fund. They also said the agreements with Atom had a confidentiality clause that would've prevented Left from publicly disclosing he was working with the fund.
Prosecutors accused Left of coordinating with at least one hedge fund, Anson Funds, to draft Citron reports and tweets, and that Anson would make trades tied to those reports, sharing a portion of the profits with Left.
Text messages shown in court included exchanges between Left and a portfolio manager at Anson.
"the best shorts are retail shorts no doubt," Left wrote in a text, referring to stocks that are owned by a lot of retail investors.
"we can DESTROY CRON," Left said in another text message, which prosecutors said was a reference to Cronos Group, a cannabis stock.
After the report on Cronos was released, Left wrote in a text to the portfolio manager that once he realized who owned the stock, it was like taking "candy from a baby."
Prosecutors said Left was paid over $1.1 million from Anson related to trades on two other cannabis stocks, Namaste Technologies and India Globalization Capital. They also said he got the money through a third party that Left invoiced for "consulting services."
The defense said Left may have consulted industry experts, like Anson, which was in the cannabis space, but that reports put out by Citron were his honest views. They said Anson, based in Canada, had better access to the stocks Left was interested in trading.
They also said Left's "candy from a baby" comment referred not to retail investors broadly but to the "hundreds" of people who sent him vile emails after he published the short report.
