After prominent activist short seller Andrew Left was convicted of securities fraud this week, short sellers are feeling the heat.
The 55-year-old head of Citron Research was found guilty on 13 counts of securities fraud for shorting companies he believed were overvalued, if not outright frauds, publishing or tweeting his views, then covering his shorts shortly after their stock prices fell — ultimately pocketing the profits. In a few of the charges, he was on the other side of the trade, promoting a stock and then selling it quickly after share prices rose. Prosecutors said he made $20 million off such bets since 2018.
Following the verdict, Left continued to maintain his innocence and vowed to appeal. “We disagree with the jury and this does not stop here,” he said.
“I think he'll win on appeal,” said one allocator who invests in hedge funds run by activist short sellers. But if Left loses the appeal, this person said, “I would definitely worry that charges would be brought against others” because the current administration would be “emboldened.”
“I think there's just a high appetite for selective enforcement, which is scary because you don't know where you stand,” he added.
Several short sellers said the case reflects what they view as selective enforcement, noting that Left was the only individual charged among roughly two dozen short sellers swept up in a broad investigation that became public in late 2021. Left was indicted in 2024.
The style of Left’s commentary was “sensational,” crossing the line into market manipulation, according to the government. But many activist short sellers follow a similar style of trading, and they have been known to use shocking language.
“If Andrew Left is guilty, just about everyone I know who appears on CNBC is also guilty,” Fox Business reporter Charles Gasparino said Tuesday.
Left’s outspoken style may have been his undoing. As his reputation for the ability to move markets grew, so did his influence. And he was right more often than wrong.
Shortly after he was indicted, financial publication Sherwood analyzed the Left recommendations mentioned in the indictment and found that if a person had followed each of the recommendations and held onto the positions, that investor would have earned a 318 percent return, excluding borrowing fees, since the date of the first call in August of 2018 until the time of the indictment. The S&P 500, meanwhile, was up about 86 percent during the same time period.
The prosecution did not charge Left with making false statements about the stocks he spoke about, but it seemed to hold him to a higher standard because of his influence, accusing him of market manipulation by claiming his trading hurt other market participants.
“The jury found Andrew did not have a good faith basis for his opinions,” said one fellow short seller who was trying to make sense of its reasoning. Left used “strong language,” he said, citing the assertions that sometimes Left did not do significant research before tweeting and looked for arguments that could move a stock as examples of behavior that could have influenced the jury.
When reached after the verdict, Left said he thought the jury focused on his “aggressive trader talk,” but added, “that is not against the law.”
“If pumping stocks and selling out after a few hours is truly a crime, there are several dudes on this website who will need to up their donations to Trump's PAC,” Claire Brown of Aristides Capital wrote on X after the verdict.
The question remains whether other activists will be worried about covering shorts after releasing reports, lest they run afoul of the government. However, there is no law stating how long a person must wait after speaking about a stock before trading—a point Left and others made during the trial.
Some short sellers, like Muddy Waters’ Carson Block, have asserted publicly that covering one’s short after making a public presentation is simply prudent “risk management.” (Block was also under investigation as part of the broader probe, but he was cleared of wrongdoing by both the Securities and Exchange Commission and the Department of Justice.)
Short seller Marc Cohodes, however, has labeled the practice a “smash and grab” technique that is — or should be — illegal like “pump and dump” schemes on the long side. Cohodes said he felt “vindicated” by the Left verdict.” I took a lot of shit, and now I’m right. It’s not okay, never been okay, and needs to stop.”
In comments following the trial, Left claimed the verdict would have a “chilling” effect on individual traders who give “honest opinions and trade at the same time.”
And other short sellers agree. “People rant about norms dissolving under Trump,” said one short seller who is not an activist. “This is just the natural offshoot. Of course, free speech is being restricted.”
