Andrew Left was paid millions by hedge funds while scrutinizing Madoff whistleblower's work with one, prosecutors allege

3 days ago 17

Prosecutors say Andrew Left worked with hedge funds but didn't disclose it to the public.
They said Left was paid from the profits earned by a hedge fund based on his trade recommendations.
Left's defense said his work with hedge funds was legal and his reports reflected his own views.

Prosecutors in Andrew Left's securities fraud trial say the prominent short-seller wasn't always working alone in the tweet-and-trade tango he's been accused of.

The Citron Research founder is accused of manipulating the market and deceiving retail investors with a plan that earned him more than $20 million.

Prosecutors said Left was working with hedge funds and sharing in some of their trading profits. They've accused him of concealing those relationships in order to "maintain the illusion of Citron's independence."

Eliza Goldberg, a chief compliance officer at Atom, a Texas-based hedge fund, testified in a 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 have also 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 showed 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.

Kelsey is a senior reporter for Business Insider, where she covers business and tech news as well as stories about travel, luxury, and consulting.Her feature story "Disaster at 18,200 feet" received awards from the New York Press Club and the North American Travel Journalists Association, as well as honorable mention from the Society of American Travel Writers. It was also included on Longreads' and Pocket's best of 2022 lists. She has also received an American Journalism Online Award for her coverage on missing and murdered Indigenous people in Wyoming.She's appeared on CBS, NPR, NBC, and other outlets to discuss her work. She previously worked on the world news desk at the BBC in London and received a master's in journalism from Northwestern University.She can be reached by email at [email protected] or via the encrypted-messaging app Signal @kelseyv.21.Popular storiesDisaster on Denali: Inside a 1,000-foot fall on America's highest peakThrifting is more popular than ever. It's also never been worse.Rolex wouldn't service the vintage watch my mom inherited. Watchmakers say it happens all the time.A tiny, invasive bug and the climate crisis are changing how guitars are made, and shifting the course of music historyThe tourism free-for-all is overGovernment-run boarding schools were founded to 'civilize' Native Americans. Hundreds of dead children remain buried in the schoolyard graves.Meet the Texas minister who helps fly dozens of women to New Mexico every month to get abortionsPeople are flocking to Colorado for the great outdoors, but the air pollution is so bad, it's forcing many to stay insideInside Kabul: An aid worker reveals the devastating chaos that erupted during the US exit from Afghanistan