(Bloomberg) — Famed short seller Andrew Left faces the possibility of decades behind bars after being found guilty of using disingenuous social media posts to manipulate stocks, in a landmark case that threatens to chill a broader trading strategy loathed by corporate executives.
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Left, who gained a large online following with his blunt commentary about major US companies as well as smaller stocks popular with retail traders, was convicted Monday following a three-week trial in Los Angeles. Even before his conviction, his 2024 indictment spooked the industry and led some short sellers to beef up legal disclaimers.
Now, the 55-year-old faces more than two decades behind bars at an Aug. 31 sentencing hearing, though criminal defendants frequently get less time. Left will remain free until then.
From the day it was filed, Left’s case was closely watched by short sellers worried they could come under fire, too. It also captivated their detractors, such as corporate executives, hoping that the government would rein in the bears they blame for hurting stock prices.
Left’s indictment followed a wide-ranging US probe of how participants in the lightly regulated short-selling industry trade. Firms typically build up bets that a particular company’s shares will fall, then issue research reports detailing their positions to the broader market.
But in Left’s case, the government took issue with how quickly Left closed out his trading positions after publicly criticizing or boosting companies. That practice has long been polarizing, and Left’s case marked one of few times that the issue has faced trial.
Frank Zhang, an accounting professor at the Yale School of Management, said the verdict will have a chilling effect on short sellers, because “it will scare them into silence.”
“This sets a dangerous precedent for short sellers, who now fear that publishing negative research and exiting trades quickly will trigger federal audits and market manipulation charges,” Zhang said.
Guilty Verdict
Left, the founder of Citron Research, was convicted on 13 of the 17 counts. He was accused of using explosive tweets about dozens of companies to illegally influence their shares and make a quick profit. Prosecutors said he earned more than $20 million from such trades from 2018 to 2023.
After the verdict, Left blasted the case as an attack on free speech and innocent trading conduct. He said it was inconceivable that he could have moved the stock of massive companies as prosecutors had alleged.
“I think the jury got it wrong,” Left said outside the courtroom. “Obviously, this is not the end of the road for us,” he said, hinting at an appeal.
At the heart of the case were Left’s tweets on the platform now called X. Prosecutors alleged that his private communications around the time he was posting his tweets proved that he didn’t always believe what he was saying about the companies and gave his followers false impressions about his trading intentions.
Patrick Grandy, assistant director in charge of the FBI Los Angeles Field Office, said in a statement that Left’s conviction will “send a message to those who may be looking to profit from similar schemes.”
Left built a sizable social media presence following prescient calls on China Evergrande Group in 2012 and Valeant Pharmaceuticals in 2015. Prosecutors claim that, from 2018 to 2023, Left published fewer reports and more tweets trash-talking stocks and setting “extreme” price targets for them.
For example, early on Jan. 8, 2019, Left opened short positions in streaming-box maker Roku Inc., then posted on Citron’s Twitter account at 9:41 a.m. that Roku was “uninvestible,” driving down the stock, according to the government. Left then “falsely and misleadingly” claimed to be “watching ROKU from the side,” suggesting he wasn’t invested in the stock, prosecutors said. In actuality, he made $700,000 from his short that day, the government said.
Jurors found Left guilty on a single count of running a securities fraud scheme — the most serious charge — and multiple additional counts related to individual securities. He was found not guilty on other counts related to individual securities.
The verdict, which came after two days of deliberations by the jury, is a win for the US Justice Department in a white-collar criminal trial under President Donald Trump’s administration — though the Left case started under former President Joe Biden. Many such prosecutions have been scrapped under Trump, who has also issued pardons for some defendants who were convicted.
Own Defense
Left took the rare step by a criminal defendant to testify in his own defense. That allowed him to explain his tweets and trades to jurors under friendly questioning by his lawyer. But he also faced a tense cross-examination by prosecutors who challenged his credibility and grilled him on private communications about his trading intentions that appeared to contradict his public statements about the companies he tracked.
During his testimony, the judge repeatedly reminded Left to answer the prosecutor’s questions directly and twice struck his responses from the record.
Left told jurors he doesn’t believe there is anything wrong with him profiting from the “price correction” of a stock after he issues a report or tweet about a company he thinks is overvalued or undervalued.
“It’s the stock market,” Left said. “I say what I believe. I speak truth. If people want to read it, read it.”
The trader also testified that he does not believe there is any law that bars him from making trades in the minutes and hours after he published social media posts or research reports on them, attempting to undercut a key element of the case.
“There is no specific period of time, I believe, you have to hold the position after you make a comment,” Left said, adding that he never made a comment about a company that he did not believe.
Prosecution
Earlier in the trial, prosecutors presented emails that they say show Left coordinated with hedge funds on stocks he planned to short and bragged his “hot voice” with retail investors meant they could “take candy from a baby.”
Jurors also heard from Mike Gorenstein, the chief executive officer of Canadian cannabis distributor Cronos Group Inc., who testified that he was stunned when Left issued a report saying the company was overvalued, prompting shares to plunge.
After the jury was dismissed on Monday, Left’s lawyer asked for a mistrial, citing an unusual clerical error that resulted in the jury filling out an outdated version of the verdict form.
Instead of 17 criminal charges, the form included an 18th count that accused Left of lying to a federal investigator. That charge had been dismissed just before the trial. The judge said she’d rule on the mistrial request later.
The day got off to a rocky start for Left. When the jury began its deliberations for the day, the judge threatened to have Left taken into custody after she discovered he wasn’t in the courthouse. That resulted in a delay when the jury asked a question during its deliberations, meaning the panel was kept waiting on an answer. The judge stormed off the bench before Left’s lawyers could explain why he was late.
The case is US v. Left, 24-cr-456, US District Court, Central District of California (Los Angeles).
–With assistance from Steve Stroth and Ben Bain.
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