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Short Seller Carson Block Sues the SEC
The Muddy Waters CEO, who has been the subject of a short seller investigation, is looking for communications between the SEC, Josh Mitts, Marc Cohodes and others.
Muddy Waters’ founder Carson Block is suing the U.S. Securities and Exchange Commission over a request for emails and documents between the SEC and several of Block’s antagonists, including Columbia University Law professor Joshua Mitts and short seller Marc Cohodes.
Block, who is under investigation by the SEC, filed the lawsuit last week in what appears to be a months-long effort to see if any of his foes helped foster that investigation.
He is asking the court to declare that the SEC violated the Freedom of Information Act and is required to provide all nonexempt records by a specific date.
Block’s initial FOIA request, made on May 13, 2022, was for “all email correspondence sent to, from, or copied between any SEC email addresses used within the U.S. Securities and Exchange Commission and any of the following: Marc Cohodes, Joshua Mitts, Marlon Paz, or M. Analytics, or anyone using the domain ‘@mofo.com’ from January 1, 2018, to the present.”
A subsequent request added former SEC Commissioner Luis Aguilar and Cohodes’ attorneys Fred Norton and David Shapiro to the list, as well as several attorneys at Latham and Watkins, which has represented at least one individual who is suing Block, as well as other companies that were the subject of short activist attacks.
The Muddy Waters CEO, who declined to comment on the lawsuit, also asked for “any documents or communications, including but not limited to correspondence, email, contracts, and invoices, relating to consulting services provided by Joshua Mitts and/or M. Analytics from January 1, 2018 to the present.”
In a white paper released earlier this year, Block claimed that Mitts’ famous “short and distort” research paper — which concluded that “pseudonymous short sellers are manipulating stocks through untruthful articles and manipulative options trading on a widespread basis” — was “without basis.”
Mitts has said that he provides consulting services to both corporate clients and the Department of Justice, which is also investigating Block, among other short sellers, in a criminal probe.
Both the SEC and DOJ investigations were revealed a year ago. Since then the top prosecutors involved in both probes have gone into private practice, as Institutional Investor previously reported. The probe appears to have languished, as no action has been taken by either agency.
In the SEC’s denial of Block’s request, the agency said it had interpreted the request to refer to consulting services provided to the SEC by Mitts, and that it had found no responsive records.
But that isn’t what Block asked for, his lawyer argued. “Based on our client’s familiarity with the subject matter of this request, it is dubious that the SEC has located no responsive records,” attorney Thomas Burke wrote in the appeal for Block. “It’s a matter of public record that Professor Mitts submitted rule proposals to the SEC intended to regulate short-sellers. He has admitted publicly that he has made presentations to SEC staff about short-sellers.”
According to the lawsuit, Block believes that Mitts “has had repeated contact and communications with individuals within the SEC. Specifically, Mr. Block is informed and believes that Mr. Mitts has submitted petitions for rulemaking to the SEC, has presented to staff members within the SEC, and has been retained by companies to lobby the SEC. The SEC must have documents and records evidencing these contacts and communications. Such records would fall within the scope of the FOIA Request.”
Mitts did not respond to a request for comment.
The SEC has not addressed the request for email correspondence between the SEC and the other individuals, including Mitts, Cohodes and the lawyers.
Short seller Cohodes has long complained about Block’s short-selling tactics, including an activist practice of covering shorts soon after releasing a short report on the company that Cohodes has called “smash and grab.” Block has defended the practice as risk management.
Cohodes’ attorney Shapiro said in an email to II that “neither I nor my client, Marc Cohodes, has ever had email correspondence with the SEC about Carson Block.”
Paz, another individual named in Block’s FOIA request, is an attorney at Latham who previously represented Block while at Seward & Kissel, where he also represented corporate clients under attack by short sellers. In a previous interview with this reporter, Paz acknowledged that he had met with SEC officials while representing his corporate clients.
Paz and Latham did not return a request for comment by presstime.
SEC FOIA appeals attorney Mark Tallarico declined to comment.