Andrew Left built a reputation on Wall Street as an outspoken investor skilled at making money by uncovering corporate frauds and betting against overvalued stocks. But federal authorities claim that Mr. Left sometimes misled his loyal followers about his intentions.
The authorities in Los Angeles filed criminal and civil fraud charges in July against Mr. Left, the founder of Citron Research, claiming he generated at least $16 million in illegal trading profits through stock manipulation. Prosecutors and regulators accused Mr. Left of using his fame to tell investors to do one thing while he traded the other way, failing to adhere to the price targets he published in reports on stocks.
The charges arose from a yearslong investigation into the activities of several traders known as activist short sellers: investors like Mr. Left who publicly publish critical reports on companies and then bet on a decline in those companies’ stock prices. Mr. Left was the lone short seller charged with wrongdoing and some legal experts are questioning whether the government overreached with some of its claims against him.
The charges against Mr. Left have also unnerved other activist short sellers. Some suggest Mr. Left became an easy target given his public profile and because short sellers are sometimes seen as a scourge on Wall Street, where most investors like to see stock prices go up instead of down.
Companies targeted by short sellers often push regulators and lawmakers to go after the investors, who say they feel unfairly maligned. The charges against Mr. Left appear to take issue with common practices by activist short sellers. Some have said they are considering revising their disclosures about trading policies.
Short sellers say they help keep markets in check, particularly during times of over-exuberance, when investors may overlook company fundamentals as share prices climb. Activist short sellers often compare themselves to investigative journalists, performing a valuable service by calling out frauds and digging up dirt.