“So…the one thing about me, is if you are my friend and you double cross me, not only are you dead, I would just as soon destroy you.”
– Marc Cohodes, August 15, 2018
Short Short World News is pleased to release the second installment of our ongoing series of deep-dive investigative reports shedding light on the huge global network of former hedge fund manager Marc Cohodes.
Our focus is on the internecine network of relationships and activities which orbit around Cohodes, with particular attention given to his syndicate of influential stock pundits and the hedge funds who secretly supply them with research and funding.
Stocks of interest include: Otonomo Inc., Overstock.com, Valeant Pharmaceutical, Farmland Partners, Care.com, Root Insurance, K12 Education, Ubiquity Networks, Shopify, Gamestop, Luckin Coffee and GSX Techedu.
Parties of interest include: Edwin Dorsey, a 23 year old paid blogger operating numerous aliases including Algoe Capital, Batman Research, Stock Jabber, and Bear Cave, among others; Andrew Left, the celebrity stock pundit and founder of Citron Research who has twice been banned from financial markets after acts of financial manipulation or deception; Dan Yu of Gotham Research, a convicted criminal who was incarcerated in Colorado on charges of theft and identity theft. Quinton Matthews a disgraced former pseudonymous short seller using the alias “Rota Fortunae” who publicly admitted to criminal acts of securities manipulation on behalf of Saberpoint Capital; Gabe “Wrong Way” Plotkin of Melvin Capital, the beleaguered hedge fund consistently on the wrong side of trades like Luckin Coffee, GSX Techedu and GameStop; Dror-Ziv Bar of Blue Sparrow Partners, formerly of Valiant Capital; Eduardo Marques of Pertento Partners, formerly of Valiant Capital; and James Carruthers, of Sophos Capital.
Over the past two years, Mr. Cohodes has escalated a high-profile social media crusade of threats and insults against many prominent members of the investment community. Cohodes insists that his only motivation for such fiery rhetoric is his concern for the well-being of ordinary retail investors, who he refers to as “Joe Sixpack”. But the truth is something vastly different.
With Marc Cohodes, there is good reason why former friends so often end up turning into bitter foes. The market misdeeds which Cohodes so loudly pretends to decry are, in fact, the very same trading practices at the very heart the flimflam racket he presides over. To maintain his racket, Cohodes creates distractions wherever he can. And when that fails, he resorts to doxing, smear campaigns and threats of violence.
In December 2017, following a series of violent threats against the CEO of MiMedx and others, the FBI saw fit to pay a visit to Cohodes’ chicken farm in Northern California. Following that FBI visit, Marc will often add some pretense of sarcasm in his invective invective in an attempt to create a veneer of deniability to his online bullying. But the sound clip below makes clear that his modus operandi of threats and bullying has not changed one iota.
Unraveling the truth about the Cohodes network is a straightforward affair. The most logical starting point is a discussion of Marc’s “grooming” of a twenty-three year old college student who now works as a highly paid online stock tout. Similarities to smear artist Jacob Wohl are worth keeping in mind.
RELATIONSHIPS > GPA
In August 2019, Stanford undergraduate Edwin Dorsey posted a blunt piece of his “best advice” to more than 100,000 viewers on Twitter. He advised inbound college freshman that relationships are more important than grades. Less than two years later, Edwin has become a case study on the pros and cons of this formula for success.
Just one year after graduating from Stanford, young Edwin is on track to make roughly $300,000 by selling subscriptions to a stock-touting blog which he publishes on Substack. Even better, he gets to work from the comfort of his own apartment, sidestepping the long hours and subservient drudgery being endured by his GPA-focused classmates who may have landed jobs with law firms, hedge funds and technology companies.
Upon its launch, Edwin branded his subscription blog “The Bear Cave” and he was emphatic about his commitment to exposing corporate malfeasance. But Edwin insisted that his operating model was different than the model employed by traditional activist investors because he said would he would refrain from taking positions in the subject companies he was writing about. This approach, said Edwin, would eliminate what he said was a conflict of interest in the business models of traditional activist short sellers.
Edwin’s high minded principles would have a very short shelf life. Just one year after launching, Edwin would begin touting long ideas as well as short ideas, and he would start taking substantial long positions in those stocks prior to publishing his recommendations to subscribers.
Edwin continues to state publicly that he does not take short positions ahead of his short reports. But then again, he has also admitted publicly that his short recommendations would likely not make any money for him anyway. Which begs the question, why is anyone paying to subscribe to his stock touting service at all ?
RELATIONSHIPS > PERFORMANCE
Indeed, while young Edwin appears to be making an impressive living from his stay-at-home blogging efforts, those who pay for subscriptions have fared quite poorly, as stocks have been far more likely to veer off in the opposite direction of what Edwin has predicted. Summary track records like the one below have often been posted to Fintwit, quantifying the extent of the damage for those who have attempted to make money from Edwin’s trading recommendations.
But fortunately for Edwin, his relationships with parties linked to Marc Cohodes have ensured that he continues to receive powerful publicity and endorsements from mainstream journalists who seem blind to his contradictions, his conflicts of interest and his poor track record.
As he closes in on nearly 1,000 paying subscribers, Edwin continues to charge over $400 per year. But make no mistake, aside from charging subscription fees for his research, Edwin has also been taking very large positions in the subject stocks prior to releasing his reports. At times this has including large positions in heavily levered options or warrants. In some cases, the stock and option activity prior to his reports was so large that Fintwit observers suggested it could only be the result of a hedge fund acting in anticipation.
Likewise, there has been ample public commentary pointing to Edwin’s habit of taking research from undisclosed hedge funds which he re-publishes as if it were his own. When confronted with such accusations, Edwin has repeatedly been caught deleting his own prior twitter posts en masse.
EDWIN DORSEY QUIETLY VANISHES FROM SEEKING ALPHA
Since he was in his early teens, Edwin has been cycling in and out of a series of pseudonyms and aliases which he uses to publish online hyperbole about stocks. At a minimum, such pseudonyms have included Agloe Capital, Batman Research, The Stock Jabber and now Bear Cave. When it serves his purpose, Edwin has also been found creating new custom aliases as part of soon-to-be-released reports. Edwin continues using such aliases for as long as they continue to provide some benefit. When the benefit stops, the alias is abandoned. His process is calculated, formulaic and repetitive.
In 2014, while still a young teen, Edwin created the Seeking Alpha account for “Agloe Capital”, which he portrayed as a legitimate financial entity. Once he began publishing in 2015, he would specialize in touting shares of companies with tiny market caps and highly illiquid trading. In other, words, the stocks most in need of hype and hyperbole and the ones which would move the most in response to even the slightest publicity.
At some point Edwin chose to delete the bio information for this Seeking Alpha page, but cached versions can still be found, for those who know where to look. However even after we locate his old Seeking Alpha page, reading his old articles is no longer possible because Seeking Alpha chose to de-index all them. To the untrained eye, it appears as if “Agloe” has never written anything on Seeking Alpha.
Such de-indexing by Seeking Alpha is typically reserved for authors who have violated their terms services, including those who lie about their identity and those who fail to disclose compensation or business arrangement involving the companies they write about. As is typical, comments and “likes” continue to remain online, even for expelled authors.
While still in high school near Rochester,NY, Edwin was also running a free standing website for Agloe Capital. That too has been taken down. But fortunately, preserved versions can still be found by searching archive.org (“The Wayback Machine”) for AgloeCapital.com.
Also on the Wayback Machine are preserved copies of Edwin’s bio page as it used to show up on Seeking Alpha. From this archived version we can therefore determine the latest upadate he had made to it before removing his info; we find that it was only after beginning at Stanford that Edwin finally deleted his biographical information from Seeking Alpha. From the Wayback machine we can also see that his earliest articles as a “contributor” began in 2015 on Seeking Alpha and that at one point he had published eleven articles on that site.
As far back as 2016, Edwin was a an outspoken bull on shares of Twitter, suggesting that it could get bought out by Softbank. Looking at his continued enthusiasm for Twitter illustrates just how lucrative his payoff has been from his relationship building activities at Stanford. Five years later, it is 2021 and Edwin has been completely de-platformed from Seeking Alpha. But this stain was hardly even a setback for him; Edwin can now be seen making appearances on national television such as on CNBC. His message is little changed since 2016, but his platform has become far more powerful.
Further analysis of his obfuscated publishing history reveals that even in 2015 Edwin was already engaged in the game of “volatility ping-pong” with Andrew Left of Citron Research. Citron puts out incendiary reports sending a stock sharply up or down, then Edwin rebuts the Citron report sending the stock back in the opposite direction. Such back and forth volatility has the potential to create highly lucrative trading patterns for hedge funds in the know. Many of the stocks being ping-ponged are large long or short positions for billionaire-backed hedge funds such as Valiant Capital, Tiger Global or Melvin Capital.
Such was the case in 2015 when Edwin used his Agloe Capital account to tout Valeant Pharmaceuticals following the now-famous Citron short report which sent that stock plunging. Valeant’s market cap plunged to around $10 billion in 2016, down from as much as $90 billion just one year earlier.
It has again been the case more recently when Edwin rebutted Citron’s long biased reports touting Root Insurance and K12 Education. Following the bullish Citron reports, Edwin publicly lambasted these companies as being highly problematic. Yet online and on social media Left and Dorsey seem to remain on the chummiest of terms.
DON’T ASK, DON’T TELL: QUINTON MATTHEWS AND EDWIN DORSEY
For blog-styled news sites like Seeking Alpha, unannounced de-indexing has become a very common practice, yet the public continues to be completely in the dark. It is a hush-hush method for expelling known bad actors without tarnishing their brand in the eyes of the public. Once it is de-indexed, problematic content will simply never be found, unless someone happens to already know the exact link to it.
Seeking Alpha’s non-disclosure practice is akin to “if they don’t ask, we don’t tell”. As such, the public tends to only learn about publishing malfeasance when litigation occurs and effectively forces the editors and management into public disclosure. In many cases unscrupulous authors simply move to a new platform where they publish under some newly manufactured alias. The process has been dubbed “the maggot run”.
In June of this year, former short seller Quinton Matthews’ entire Seeking Alpha history was de-platformed following a stunning public confession in which he admitted to acting as a paid-for smash and grab artist on behalf of Saberepoint Capital, a long-short hedge fund based in Dallas.
Since 2013 Matthews had penned more than a dozen influential short articles on Seeking Alpha using the nom de plume of “Rota Fortunae”. After playing a supporting role in exposing significant frauds by US and China based companies, Rota Fortunae was perceived as an ethical member of the activist short seller community. However, following his stunning public mea culpa, it became clear to everyone that Matthews was little more than a paid smear artist who was merely latching on to activist short seller campaigns simply for the benefit of his hedge fund paymasters.
After seeing his public confession, the majority of the activist short community has rightfully severed any ties which may have existed before those facts became known.
For almost three years Matthews could be seen blanketing Twitter with his outraged insistence that he was a protector of the public interest who had been egregiously wronged by this lawsuit and that he would ultimately be vindicated in court. But none of these things were true. Matthews had tried desperately to conceal his identity but eventually a judge ruled that he would be required to disclose it to the court. Only at this time did he choose to “reveal his identity” to his followers as part of a failed attempt to spin a narrative in his favor.
In a surprise to no one, once his short-selling career was in tatters, Quinton Matthews made a predictable pivot in his business model; he began using his Twitter feed to attempt to publish outlandishly bullish commentary for the benefit of stock promoters on stocks such as Camping World Holdings.
In the tweet below, Matthews attempts to tout the business model of “social arbitrage” for generating alpha, saying that his associate Chris Camillo has earned a compounded annual return of 85% over a period of 15 years. Such absurd euphemisms and performance claims display the duplicity and dishonesty which became clear once Matthews beat his retreat from activist short selling.
Even after the shocking revelations of dishonesty which emerged around Quinton Matthews, Marc can be seen showing his support and commitment to the former short seller. It is the same type of support Marc displays in the face of rising public ire over the activities of Edwin Dorsey. Despite being de-platformed from Seeking Alpha, Edwin has not made a scandalous confession like the one from by Quinton Matthews.
For those researching Edwin Dorsey, there is no shortage of source material; he has been a prolific self-promoter across all manner of media and social media and has appeared in dozens of small-time podcast interviews where he enthusiastically tells and re-tells his patter of well-scripted anecdotes and sound bites, including here, here, here and here.
As told by the youngster himself, during his freshman year at Stanford, Edwin took his storied “hundred dollar Uber ride” to meet Cohodes on his chicken farm in Northern California. Also from these interviews, we learn that it was during this chicken farm chat that Cohodes convinced Edwin to create a new twitter account. Marc assured Edwin that he would use his (Marc’s) massive social media influence to ensure that Edwin’s Twitter account would attract its own strong following.
Cohodes’ Twitter support was undoubtedly necessary for Edwin because Seeking Alpha was no longer available to him.
In October 2017, Edwin created an account called “Batman Research” and just three weeks later he was out with its first ever report. Edwin’s inaugural report was an incendiary exposé hurling allegations of business impropriety at Austin, TX based Care.com. The quality of the Care.com research was undeniably on par with top notch reports from top tier short activists, and few would be surprised when the company later became embroiled in public scandal over its business practices.
It is inarguable that the diligence produced on Care.com was top notch. However, any notion that young Edwin was the one responsible for said research is grossly far-fetched. Furthermore, any notion that this youngster performed such work in a mere three weeks is simply not credible.
At the heart of the matter lies the fact that Edwin adopted this moniker of “Batman” for his Twitter handle.
Since the early 2000s, the hackneyed cliché of “The Stock Market’s Batman” has been used as a little-known “dog-whistle” used amongst short book traders within Tiger Cub and SAC Cub hedge funds. “Batman” became a clever signaling mechanism to let these greed-fueled hedge funds know that regardless of who is fronting a given short report, the content and quality within it are the work-product of the most lethal veterans in the activist short community. In effect, Batman themes are used as a branding tool to signify the presence of the most devastatingly profitable caliber of deep dive due diligence.
The identity of any given front man behind “Batman” was never really the point; the Dark Knight role has been assigned back and forth between a cast of flamboyant and theatrical front men, each of whom was closely linked to Marc Cohodes. At times the Batman pantomime has been performed by Andrew Left of Citron Research, Dan Yu of Gotham Research and even famed con-man Anthony Elgindy, to name a few.
As a result, when young Edwin debuted his “Batman” account in 2017, Tiger Cubs and SAC Cubs would know immediately who was pulling his strings. Instead of being dismissed as just another college-aged neophyte, hedge funds would know to expect the same devastatingly profitable trade ideas as they had enjoyed regarding Valeant Pharmaceutical, Gowex, Quindell and Questcor/Malinkrodt.
To some, winning the chicken farm audition for the part of “the short selling Batman” might seem like a bountiful blessing. But veterans in the activist short community know better. After the initial spurt of fame and fortune, those who perform the role of “Dark Knight” for Marc Cohodes and his cronies have consistently ended up in the direst of dire straits: destitute, disgraced or in prison.
Anthony Elgindy: the original “Batman fighting evil”
Within the realm of activist short selling, the “Batman” persona was first associated with Anthony Elgindy, a notorious rogue sort seller from the early 2000s. Elgindy’s reports were awesome and his reporting sent dozens of high profile executives to prison – even including the notorious Wolf of Wall Street Jordan Belfort.
In the early days, Elgindy had been widely portrayed by the media in the same skein as Marc Cohodes: as a “crusader” and a Maverick and as the protector of Joe Sixpack. But eventually truth prevailed and in 2005 Elgindy was sentenced to nine years in prison.
In the course of his short selling activities Elgindy had been been committing fraud far more egregious than the fraud he was exposing. Far beyond just mere manipulative trading, Elgindy was eventually convicted of insider trading, racketeering, extortion and tax evasion. Shortly after being released, Elgindy died under mysterious circumstances with the official cause of death listed as “suicide”.
Also sent to prison was Jeff Royer, an FBI agent who Elgindy had recruited and who had secretly been feeding confidential information to Elgindy sourced from FBI databases. The Elgindy short selling saga became the basis for a full length episode of American Greed called “The Mad max of Wall Street”. Ultimately the conclusion was simple: Elgindy’s hero shtick fakery was simply “too good to be true”.
Elgindy was released from prison in 2013 and died shortly thereafter under unusual circumstances which were ultimately attributed to suicide.
Throughout the trial, Elgindy’s lawyers claimed that he was a Batman fighting evil, a reformer, an altruist. But those who had dealt with him, myself included, got a belly laugh out of those assertions….The prosecutor’s office declared, “Elgindy’s conviction marks the end of his public charade as a crusader against fraud in the markets.”
Gotham Research: Dan Yu and Marc Cohodes
From 2013 to 2017, the role of “Short Selling Caped Crusader” was payed by Dan Yu via the anonymously run web presence of “Gotham Research”. The chronology of Mr. Yu and Gotham Research illustrate both the speed and the ferocity with which “friends of Marc Cohodes” get re-branded into “foes of Marc Cohodes”.
In June 2019, Dan filed a police report in San Francisco alleging that Marc had physically attacked him, punching him in the face and breaking his glasses, adding that Cohodes then fled the scene before the police could arrive. As shown in the police report, Dan stated that as of 2019 he had been “friends” with Marc for eight years. As further described in the police report, we observe that Mr. Yu would not disclose to the police what it was that he and Cohodes had been arguing about, or why it had led to that violent punch in the face. Furthermore, although we can determine that the assault occurred at the House of Prime Rib steakhouse in San Francisco, there is scant additional information available online. Aside from a scant few mentions on Twitter, it was largely hushed up or downplayed by financial media and bloggers.
Minimizing public attention around this acrimonious split was of utmost importance and the “Batman” links explain precisely why.
Even after Elgindy and Royer were sent to prison, the Batman short selling racket had never truly ended, far from it. Any public scrutiny of its secrets, in police reports or legal discovery, would end up leaving a “black eye” on the faces of some very important figures the tight-knit San Francisco hedge fund community. Unlike social media performers like Cohodes and Yu, these powerful hedge funds are deeply averse to even the slightest occurrences of unscripted media attention.
To grasp why Dan would keep mum after being violently attacked by Marc, we consider the following facts.
By 2013, Elgindy’s prison sentence had ended and he was just being released from the Terminal Island Correctional Institution. However, with his phony superhero narrative now thoroughly debunked, Elgindy was of no use to anyone.
As a replacement, in 2013, the caped-crusader motif was passed down to Dan Yu, who at the time was an unknown upstart. Dan would adopt the anonymous persona of “Gotham City Research”, which he would then brandish about, replete with all manner of hokey comic-book gimmickry about “fighting crime from the shadows”.
To those in the know, the whole Batman charade created no mystery whatsoever. Tiger Cubs and SAC Cubs would know full well who was behind this new “Gotham” account and would know to expect only the most devastatingly profitable of results from his short reports. Prior to landing himself in prison, Elgindy had made these funds billions of dollars with his short reports, and now this new “Gotham” would do exactly the same.
Gotham’s first two reports pilloried Ebix and the Tile Shop, lambasting the companies as being complex frauds in the same skein as the Crazie Eddie fraud of the late 1990s. Later, Gotham would cycle through a series of reports targeting Medifast, a perennial favorite short target of the short sellers tied to the sprawling global network in orbit around Cohodes, such as convicted conman Barry Minkow.
Minkow was another rogue short seller from the 2000s who ended up in prison and many of Gotham’s facts and arguments were lifted in almost identical form from the earlier reports published by Minkow.
Even at a glance, a profile of Dan Yu bears many similarities to the disgraced Barry Minkow.
Minkow had begun his securities fraud career while still a high school student in Los Angeles, where he ran one of the most brazen scams of the 1980s, a pump and dump called ZZZZ Best. In 1989 Minkow was sent off for his first stretch in prison. After being released in the 1990s, Minkow pivoted from running pump and dump fraud into running short and distort fraud; he insisted that he was harnessing his past knowledge of securities fraud to now expose securities fraud and that his motive was in serving the public good. Minkow became famous for invoking his corny catch phrase “It Takes One to Know One”. Incredibly, journalists took the bait and repeated his sound bites far and wide.
Minkow had been raised Jewish but claimed that he had found God while in prison. Upon his release, he founded his very own church south of Los Angeles where he played the part of “Pastor Barry Minkow” to the flock in the Los Angeles area. But by 2010, Minkow was being hit with his second prison sentence following convictions for extortion and racketeering in connection with his ill-conceived short campaign against Lennar Corp.
After being released from that second sentence, Minkow would then get himself yet a third prison sentence in 2014 for embezzling millions of dollars from his church congregation. In the end, Pastor Barry had sheared his own flock. However, by this time, the cape and tights had already been re-assigned to Dan Yu who was operating as “Gotham City Research”.
As was the case with Elgindy and Minkow, the investigative reports published under “Gotham” were nothing less than awe-inspiring; when a short report was released by Gotham it portended a veritable death sentence for the company being targeted. Companies such as Gowex, Quindell and others would implode in short order. In many cases, they could never hope to fully recover.
But Dan had his own set of dark secrets which the market could never have guessed. As an activist short seller, Gotham City Research was launched in 2013, which happened to be just a few months after Dan had been released from a stint in a Colorado jail; he had been charged with acts of Theft, Identity Theft and Burglary.
From its inception in 2013 all the way into 2017, Dan had been successful, for the most part, in keeping his criminal past a secret from the market. Initially, he had operated Gotham as a totally anonymous account. He had even flaunted this anonymity to further amplify his caped-crusader mystique in the eyes of the media. Just as they had done for Barry Minkow, a handful of journalists were willing to regurgitate this improbable narrative and portrayed Dan Yu as a Cohodes-styled protector of Joe Sixpack.
But in 2014, UK insurance claims outsourcer Quindell PLC filed a lawsuit against the Gotham City alias and the anonymous author failed to turn up to defend the veracity of his fraud accusations. The result was that Quindell, a company which later would indeed collapse under the cloud of a massive accounting scandal, won a default judgment against Gotham. At first, the victory appeared to be largely symbolic; it was well known that such a judgment by the UK courts was highly unlikely to be enforceable by US courts and the New York based defendant could simply avoid traveling into UK jurisdictions.
But a secondary consequence of the litigation was that the true identity of the publicity-averse author behind Gotham came spilling out into full public view. With exposure now imminent, Mr. Yu implemented the same time-tested damage control maneuver which would later be attempted by Quinton Matthews: Dan launched his own preemptive media campaign where he claimed he was “stepping out from the shadows” to reveal his own identity.
At its heart, Dan’s knee-jerk PR effort was nothing more than posturing. Exposure had become inevitable and the PR stunt was an urgent attempt to to sculpt and control the media narrative to his favor before it moved badly against him. To his credit, Dan’s early implementation of this strategy was far more successful than the similar PR attempt made by Quinton Matthews after his exposure in the Farmland Partners lawsuit.
Once the identity of Dan Yu was outed in 2014, his backers wasted no time in disseminating a professionally crafted media narrative which they spoon-fed to a tight-knit cadre of financial journalists who dutifully parroted the script.
Dan Yu, they assured their readers, was a super-cerebral super-sleuth, an MIT educated hedge fund analyst whose deep moral grounding is what drove his passion for exposing corporate malfeasance. The Super-Dan narrative was delightful for jaunty headline appeal, but underneath the corny clichés it was just a load of ca-ca; it was never going to last forever.
In August 2017, the unvarnished truth about Dan’s criminal past found its way to the surface.
Prior to the recent debacle involving rogue short Quinton Matthews, the scandal around Dan Yu and Gotham had arguably been the biggest debacle of the past decade for the activist short selling community. Corporate bad-actors and their law firms would love nothing more than to discredit the practice of activist short selling and Dan’s duplicity was a veritable gift to them all. For those with a long term commitment to the positive force of activist short selling, Dan’s misconduct was more than just a “black eye”, it was a full-force kick to the testicles.
Exposed as a charlatan, Dan Yu could not longer continue his pretense of acting as an activist short seller, so he made same worn-out pivot as Quinton Matthews and many other failed short sellers: he began touting as longs the same controversial stocks that he had earlier been accusing of fraud, such as Criteo SA.
In recent years Dan is often seen trying to ingratiate himself with well-known short sellers and investigative journalists and he was even able to worm his way back into at least one prestigious anti-fraud conference in San Francisco. However top tier short activists are increasingly keeping their distance from Mr. Yu.
The dark history of dishonesty around Dan Yu and Gotham City Research have already been well chronicled in an earlier report here at Short Short World News.
Citron Research suffers “the Batman curse”
By Autumn 2017, details of Dan’s criminal history were spreading like wildfire across social media. In September of that year, he attempted to publish his incendiary report alleging fraud at Criteo SA, but the market simply refused to care. Dan had become a veritable pariah to his former short selling brethren and his Gotham City brand had, for all intents and purposes, lost its ability to influence stock prices.
But for the hedge funds within the Cohodes network, there was still plenty of room to relaunch a new spin-off within the Batman franchise. There would be no shortage of front men eager to audition.
At that moment in 2017, the reputation of Andrew Left was riding high in the activist short community. In 2015, Left had been one voice within the chorus of short activists who had raised the alarm about the massive fraud taking place within Valeant Pharmaceuticals, the Canadian Pharmaceutical roll-up which at one time was valued at over $100 billion.
Left’s reporting had arguably been the least correct among the major fraud exposés, but it had also been the first to be published. So, rightly or wrongly, when Valeant finally imploded under the weight of a price gouging and accounting scandal, Left was able to assert bragging rights to the media. Left would often take majority credit for work which had, in fact, been performed by many people, such as short seller Fami Quadir of Safkhet Capital and investigative journalist Roddy Boyd.
At the time of his Valeant reporting, Boyd was publishing under the banner of the Southern Investigative Reporting Foundation. He currently manages the Foundation for Financial Journalism. From its website at ffj-online.org/donate/ the Foundation states that
With a commitment to accuracy, we strive to meet or exceed the highest standards in nonproﬁt governance and ethical journalism. Our work is free of any agenda and the completed investigations are published free of charge, without advertisements or sponsors. We are funded solely through the tax-deductible contributions of individual donors and foundations.
In June 2017, Left’s PR firm arranged for a splashy mutli-page puff piece to appear prominently within the New York Times Magazine in which he would be branded as “The Bounty Hunter of Wall Street”. This “Bounty Hunter” planted puff piece was an example of that worst that PR firms have to offer. It was not so much an editorial as it was a haphazard stringing together of cringe-worthy clichés and and shameless tropes from film noir detective novels, Lifestyles of the Rich and Famous episodes and swashbuckling pirate bravado movies.
Aside from the descriptions of his cerebral investigative clairvoyance in taking down Valeant, the trashy romance pamphlet came replete with unnecessarily detailed descriptions of Left’s hill-top mansion, his flashy sports car, his A-list celebrity neighbors and his irresistible sex appeal to the throngs of college students who would swarm him at public events.
One of Left’s friends recalled a visit Left made to a university to give a lecture. In the hallways afterward, the students swarmed him. “It was like he was Mick Jagger,” the friend said….In the past three years, the number of activist short-sellers working globally has nearly doubled, to 72 from 39. Very few have a positive track record. Left does. On average, the value of companies he writes about drop 10 percent in a year, and some drop as much as 95 percent.
To ethical veterans in the activist short community, this emphasis on money over morality felt eerily reminiscent of the final days of Anthony Elgindy before he was sent off to prison. In his own bales of planted interviews Elgindy would never let slip any opportunity to name-drop about the important friends and brag about his mansions and luxury sports cars. Elgindy’s Ferrari and Bentley automobiles sported custom made-vanity plates emblazoned with the words “No Bid”, which his celebrity neighbors would later watch getting towed away by the FBI following his arrest.
Regardless, in late 2017 the media hype around Left would make him the perfect candidate to play the lead role in a new Batman spin-off. On October 9th, just two days after Dan Yu’s thirty-fifth birthday, Benzinga News ran a slick four minute video segment with the title of “Citron Research: Who is Wall Street’s Batman?”
To the top tier hedge funds involved in short activism, this Benzinga video was the equivalent of shining a Batman signal-light into the night sky. It was the official notice that Dan Yu’s “Gotham City” character had been canceled and that the Batman role and its accouterments had been formally reassigned to Andrew Left. New short reports would stop appearing on Gotham’s website just as a surge of such reports would start coming from the Citron site with noticeably greater frequency.
As with his puff piece in the Times, this Benzinga video touting Andrew “Batman” Left was a shameless act of public relations.
As touted in the Batman video, between 2001-2014 Citron had written 111 short reports and the average share drop that followed was a formidable 42%. Furthermore, they insisted, Citron’s reports were no flash in the pan events. In the one year after his reports came out, 91 of these stocks were lower than when Citron panned them and only 20 were trading higher. In a surprise to no one, Benzgina lauded Citron for his intrepid detective work exposing Valeant, then credited him with causing the eventual resignation of that company’s CEO and even with gave him credit for sparking the regulatory reforms which were later implemented against the entire pharmaceutical industry.
Aside from performing as brand-building for Citron, the Benzinga video served a more practical near-term purpose; it zeroed in the public’s attention onto Citron’s three most recent short reports lambasting Ubiquity Networks, Veritone and Shopify. However, in stark contrast to his success in shorting Valeant, all three of these short campaigns would end as embarrassing failures for Citron. Indeed, Citron’s use of the Batman franchise to pan these three stocks would mark the beginning of his remarkable fall from grace. For Andrew Left, the Batman curse had begun.
To the eyes of veterans in the activist short selling space, Andrew Left has plenty in common with Dan Yu, Anthony Elgindy and Barry Minkow. Left had spent time in jail and had been banned from trading in Hong Kong following a regulatory ruling which determined that he had engaged in manipulative activities.
Earlier in his career, back in the US, Left had been barred from activities in the US futures markets. According to the ruling posted on the National Futures Association website, “The panel found that left made false and misleading statements to cheat, defraud or deceive a customer”.
Based on these and other concerns, a lengthy petition at Change.org has amassed tens of thousands of signatures demanding that the SEC investigate Andrew Left of Citron Research.
Descriptions of Andrew Left’s early career are easy to find online, such as the following,
“Left’s first job was with Universal Commodity Corp, a high-pressure commodities brokerage firm that hired salespeople to make cold calls and push “questionable investments.” Left quit in March 1994, after 9 months with the company. When the National Futures Association sanctioned the firm in December 1998, Left, along with every other former employee, was sanctioned for three years along with being required to take an ethics-training course as part of the probe into the firm for making false statements to sell commodity futures contracts. The National Futures Association stated Mr. Left “made false and misleading statements to cheat, defraud or deceive a customer in violation of NFA compliance rules…
…In April 1999, Left became president and CEO of Detour Media. He was named director of the company in November 1999. In 2002, his then employer Detour Media sued Left and prevailed on a $25,000 default judgment against him.”
Detour Media was a dicey reverse merger penny stock which sought to enter the “publishing business”. Shortly after Left took the helm, Detour’s losses quickly swelled into the millions and the firm was forced to shut down amid financial distress. Detour then sued Left for fraud in Los Angeles County Superior Court, winning a judgment which had accused him of stealing money by writing bad checks.
At the time, Left was telling a very different story journalists. From an interview with The New York Post in 2001,
The latest developments come after the publicly traded company [Detour Media] said in February that it would be necessary to raise at least $2 million very quickly if it was to continue to operate. CEO Left yesterday told The Post he was absolutely not closing the doors. “We’ve raised money since then, but not quite the $2 million,” he said.
In 2001, under a cloud of suspicion, Left launched his own stock shorting website Stocklemon.com – essentially just a knock-off of the short seller website AnthonyPacific.com which at the time was propelling fraudster Anthony Elgindy to fame and fortune. It was alleged online that Left had stolen $25,000 from Detour in order to fund the early short trades which he wanted to write about on Stocklemon.
Mr. Left continued under that Stocklemon banner for the next five years, belting out incendiary short reports, which very often happened to coincide quite closely with short positions of the hedge funds linked to Marc Cohodes. These themselves would often further overlap with the short reports which had earlier been published by Elgindy and Minkow. Examples included Citron’s short reports against Medifast, Fairfax Financial, InterOil and Usana, the last of which had also sued Minkow.
By 2007, lawsuits against Left had multiplied to the point that he could no longer conceal his personal past from the public eye; the short seller was becoming the scandal more than the dicey companies he was trying to expose. Further information about Andrew Left can be gleaned from the lawsuits filed by GTX Global, Smart-Tek Solutions and by Donald Danks’ iMergent.
As such, in late 2007 Mr. Left folded down the Stocklemon moniker and re-branded his activities under the banner of “Citron Research”. The launching of CitronResearch.com would mark the beginning of a decade-long run of wealth and prestige for Andrew Left, much of which came down to nothing more than being in the right place at the right time.
By 2010, formerly prestigious short sellers Elgindy and Minkow were both behind bars following unrelated convictions on securities fraud, extortion and racketeering. Furthermore, a Los Angeles judge had ruled against Minkow in a defamation lawsuit, granting one of his former targets a judgment in the amount of $1 billion.
By 2010, Elgindy and Minkow were down for the count, with the effect that Andrew Left was now the uncontested “top dog” among activist short selling publishers. When hundreds of Chinese reverse mergers imploded in 2011, Citron made millions. When short sellers later zeroed in on Big Pharma, Citron made millions more. Aside from his well known trade on Valeant, Citron was the most visible front-man targeting the largest of the bad actors, companies such as Questcor, Malinkrodt and Express Scripts – a company who who Left dubbed “The John Gotti of the pharmaceutical industry”.
It was a long lived run of high profile success, and yet, as with Dan Yu, it could never have lasted forever. In recent years, Citron’s platform has deteriorated into a parody of its former self. And to many, it feels eerily conspicuous that his painful reversal of fortune began almost immediately after he donned the Batman mask to pan Shopify and Ubiquity in October 2017.
Citron vs Shopify: hubris, hype and hypocrisy
In October 2017, when shares of Shopify were fetching $110, Citron published a short report with the soundbite that the company was “a business dirtier than Herbalife” and prophesied that the share price was ripe for a precipitous decline. However, despite an initial knee-jerk drop, the market soon refused to care about his short thesis and shares of the Canadian ecommerce giant quickly rallied.
By April 2019, Shopify shares were fetching a price of $200. At this point, Citron escalated his rhetoric, promising publicly that if the shares failed to fall below $100 within the next twelve months that he would personally donate $200,000 to the Robinhood Charity Foundation. The market merely yawned at Citron’s theatrics and Shopify continued its meteoric climb, eventually rocketing to $1,500. But when the Twitterverse reminded Andrew about his earlier charitable promise, he simply deleted his earlier tweet and kept mum.
Tiray short squeeze: Citron’s prelude to pandemonium
In early September 2018 Citron published a bear thesis against Canadian cannabis producer Tilray, based largely on its runaway valuation amid euphoria for cannabis stocks. Just weeks earlier, when Tilray was trading at lower levels, Citron had been outspoken about his long position in that very same stock. But just as he began reversing his rhetoric the stock was beginning a precipitous melt-up. On September 18, with the stock rising sharply against him, Citron escalated his invective into quasi-allegations of wrong-doing, saying publicly that Tilray had “crossed to promotional and misleading”. However, he deleted his quasi-allegation before the day was even done.
With Tilray, the market didn’t just yawn, it chose to fight back. Traders began buying up shares of Tilray, forcing a massive short squeeze, the likes of which had not been seen since the dizzying squeeze of Taser International fifteen years prior.
Rumors abounded that Citron’s losses on this short trade had been so catastrophic that Mr. Left had effectively gone belly up. In public statements, he attempted to convince the market that he had covered or hedged his runaway short positions at price points which, although painful, had not been fatal. However, within weeks Left was out pumping allocators in an attempt to raise outside money for his first-ever hedge fund.
At the time it occurred, the dizzying Tilray short squeeze seemed to many like an ultra-rare black swan event, an exception that proves the rule about dicey Canadian stock promotions. But instead, Citron’s Tilray squeeze turned out to be mere foreshadowing before the market-wide pandemonium which he would spark sixteens months later with a failed short report against Gamestop.
Doing the Chicken Walk (Citron goes Long on Tesla, Long on Elon)
In short seller argot there is a financial move called “doing the chicken walk”. When a short seller finds himself in financial dire straits, he performs a self-serving reversal of his formerly-deeply-held convictions and exchanges 100% his integrity to collect whatever pecuniary gain he can muster, regardless of how immoral the source may be. The chicken walk is one more example where Andrew Left can be seen emulating Marc Cohodes.
After losing money shorting Tesla in August 2018, Citron quickly sued Tesla and Elon Musk over his losses. Then after losing even more money shorting Tilray a few weeks later, Citron abruptly reversed his anti-Tesla rhetoric and morphed into a shrill advocate for Tesla and Elon.
His public posturing notwithstanding, Andrew Left’s losses on the Tilray short squeeze had undoubtedly left him in the direst of dire straits. Raising a fund might be possible eventually, but that would take time and Left was either unwilling or unable to wait. So, in October 2018, Andrew Left performed his chicken walk on Tesla and Musk.
On October 23, 2018, Citron published a report stating that he was long Tesla Motors because he had suddenly become extremely bullish on its future prospects. In a glaring departure from his history of deep-dive investigative analysis on the short side, Citron’s sparse and airy write-up was filled with little more than soundbites, buzzwords, and over-sized charts whose main contribution was that they filled up prodigious amounts of white space. To seasoned investment professionals, Citron’s Tesla report bore scant resemblance to an activist investor thesis and far greater resemblance to an investor relations pitch deck.
Citron’s blatant chicken walk regarding Tesla and Musk drew stinging public rebuke from the activist short community, a rebuke that was unarguably well deserved.
In 2017, Citron had been an outspoken Tesla bear. Mr. Left had made numerous appearances on financial media saying he was ramping up his already-large short position against the controversial maker of electric vehicles. The valuation, explained Left, had become detached from reality such that the stock could easily plunge by 70%. Following his thunderous public remarks, Citron continued to short Tesla well into 2018.
During this time, CEO Elon Musk was steadily intensifying his jihad against short sellers, inundating the media with outlandish acts of deception. Anytime the stock displayed potential for weakness, Elon would pull some new rabbit out of some new hat to spark painful squeezes against the shorts.
On August 7, 2018, Musk sent out his now infamous “funding secured” tweet leading investors to believe that Tesla was about to be bought out at a price of $420.
(Editors note: Tesla announced a five for one stock split in August 2020. References to pre-split share prices are quoted as they appeared at that time and have not been adjusted for the stock split. After adjusting for the August 2020 stock split, the $420 price referenced by Musk would equate to a price of $84 if expressed in current share price terms)
On September 6, 2018, Citron filed a class action lawsuit against Tesla and Musk claiming that he had suffered millions of dollars in losses due to Musk’s manipulation of the share price. However, from the exhibits in this lawsuit, which was filed by Citron’s lawyers at Labaton Sucharow, one can observe dozens of same-day trades for millions of dollars at a time in which Mr. Left could be seen opening and closing his positions just minutes apart.
Andrew Left was day trading.
In his lawsuit, filed September 6, 2018, Left had stated that the strength in Tesla’s share price had been the result of manipulation by Elon Musk, and that Elon had made his false and misleading statements as part of his feud against short sellers. In that same filing, Left pointed to a Wall Street Journal article which stated that there was already an SEC probe into these sordid activities. Left proclaimed that short sellers played a valuable role in keeping markets honest, a fact which he evidenced by citing the work of hedge fund manager Mark Spiegel of Stanphyl Capital, a highly outspoken critic of Tesla and Musk.
It was just 34 trading days later, on October 23, 2018, that Citron stunned the market by suddenly “reversing” his opinion on Tesla and Musk, morphing into an outspoken and supportive supporter. To the “cynics” in the crowd, it was easy to suspect that Left’s chicken walk on Tesla had more to do with his recent Tilray losses than it did with any newfound understanding of the virtues and wisdom of Elon Musk.
Nevertheless, joining forces with Elon had been a profitable move for Left. By December 2018, the media hype alone sent Tesla from $250 to as high as $400 ($50 to $80 in post-split terms). But within a matter of weeks, the media clichés about a “short seller going long” had fizzled and the share price sagged.
So in Match 2019, Left came back for another bite at the apple, this time adding a sense of urgency to his earlier hyperbole. According to Citron, March 2019 was “time to pull the trigger”.
But in this latest tout from March 2019, Left veered past hyperbole and into the territory of ad hominem. As he himself would later admit, his report comprised a mean spirited attack against the characters and investment decisions of prominent Tesla short sellers Jim Chanos, David Einhorn and Mark Spiegel.
From Citron’s original report,
Again, we were short the stock for several years and remain the lead plaintiff in suing Musk for his 420 tweet. However, his critics are over their skis.
Let’s evaluate their recent track record: David Einhorn was down 34% last year, Jim Chanos was down between 9-19% through July of last year, Whitney Tilson closed his struggling hedge fund which never performed or scaled, Mark Spiegel is a nice and smart man but no one has ever heard of him until he started to dedicate his life to hating Tesla. To our knowledge his fund still manages around $10 million.
Like him or hate him, Musk in the past 2 years has: Taken Tesla to the #1 selling luxury car in the US and proven the concept of EV demand outpacing all competition. Rejuvenated the US space program as we prepare to re-launch crewed missions to space. Created a company that is in the early stage of redefining underground transportation with the support of major metropolitan cities.
This masturbatory word-salad from Citron’s March 2019 report failed to produce its intended effect. By August 2019, Telsa had fallen by as much as 50% from its recent highs and Left found himself back in dire straits, both financially and reputationally.
Struggling to raise money from allocators for his hedge fund, Left made what was clearly a calculated decision: On August 12, 2019, Citron publicly issued a formal apology to Chanos, Einhorn and Spiegel, making clear that this was the first time in his career he had ever made such a move. His apology to Chanos, Einhorn and Spiegel was further picked up and circulated by mainstream financial media.
Chicken Walk precedent: Marc Cohodes and Overstock.com
The most poignant precedent for Citron’s chicken walk can be found by looking at Marc Cohdoes’ sudden reconciliation with Overstock.com and its controversial CEO Patrick Byrne, a move which left the entire market utterly gobsmacked when it transpired in 2017.
As a short seller, Marc had spent more than a decade locked into a hot-blooded feud against Overstock.com and its CEO Byrne. Cohodes had very publicly alleged numerous acts of manipulation and fraud which had triggered and SEC investigation into both the company and Byrne.
In 2006, while Cohodes was still operating as Rocker Partners, Overstock and Byrne sued Marc’s hedge fund over false statements he had made. During the litigation, Marc gave recorded testimony stating that Byrne is “crazy” and “not fit to run a public company.” Not long thereafter, Cohodes took the reins of Rocker Partners and changed its name to Copper River, even as the litigation continued.
When Overstock won that suit against Cohodes in 2009, the $5 million judgment against his fund was one of the final blows which snuffed out any final chances Marc might have had to continue as a professional money manager. Then, even long after sending Cohodes home to roost, Byrne continued to finance and operate a professionally organized publishing website called DeepCapture.com which, according to its critics like white collar fraud expert and consultant Sam Antar, was simply “a fake news site… to harass, stalk and smear critics, short-sellers and the media.”
The feud between Cohodes and Byrne had been an acrimonious one which had lasted for more than a decade. As a result, it came as a shock to everyone when Marc stood up at the Grant’s conference in October 2017 saying he was long on shares of Overstock and now regarded Patrick Byrne with the deepest of admiration. Marc’s long position in Overstock had reportedly been initiated in May of that year, although details and specifics have never been fully clarified regarding how this came to be.
This chicken walk maneuver with Patrick Byrne yielded all manner of benefits, both pecuniary and non pecuniary, for Marc. For example, shortly after he began advocating for Overstock, Mr. Antar discovered that Cohodes’ name had been thoroughly scrubbed from the entire DeepCapture smear site. Antar’s detailed investigative report on these events can be found on his website www.WhiteCollarFraud.com.
Antar, a convicted felon, is a professional white collar fraud consultant who specializes in training law enforcement how to detect and prevent corporate fraud. To many, Antar is better remembered for his original role as the CPA and CFO who masterminded the accounting chicanery within the infamous Crazy Eddie Electronics fraud, one of the biggest stock frauds of the 1990s.
In December 2017, Antar penned a lengthy missive making the case that “Thanks to Marc Cohodes, We’re Back to the Bad Old Days at Overstock.com”.
According to Antar,
As he promotes his Overstock position, Cohodes has adopted some of Byrne’s most aggressive tactics. He has sought to intimidate and silence critics in private communications, and has waged an aggressive public campaign harassing skeptics on social media. Without critical scrutiny by independent analysts and the financial press, investors are ill-served and the market is not sufficiently exposed to contrary points of view.
“Quixote vs. Lernout” as a precedent for Citron vs. Tesla
Many prominent short sellers including Carson Block, David Einhorn and Jim Chanos have railed against the lies and immorality of Tesla and Musk since its earliest days as a public company. Some have incurred substantial losses by being short Tesla stock and have taken their lumps with pride.
For a short seller like Left to file a lawsuit to recover losses from his target is a gambit whose history of futility has already been well established. Unsurprisingly, the most memorable precedent for such a gambit is in the lawsuit filed by Marc Cohodes and Rocker Partners against Lernout and Hauspie in the early 2000s.
For Marc, Lernout is a favorite fish tale which gets bigger with every retelling. He visibly rejoices in every opportunity to regale his followers with his blood-and-guts play-by-play account of how he single-handedly took down the largest stock market fraud in the history of Europe, relying on nothing more than his swashbuckling bravado and stoic perseverance. Following the company’s demise, and the prison sentence for its CEO, Lernout became Marc’s Big-Game-Highschool-Touchdown which he would revel in for decades to come.
But for those who care to reconcile facts against the fantasy, the truth of the matter shakes out much differently.
At its very peak, Lernout was at most a $1.5 billion company. Marc had been shorting the company since much lower levels, when it was really just another run-of-the-mill, froth-filled microcap, the likes of which were in vast overabundance during the dot-com boom of the late 1990s. Marc had been so insistent upon pursuing his aggressive short campaign that by the time the stock eventually peaked out, he had already been forced to “tap out” of his poorly conceived short bets. In the end, Cohodes’ unwavering personal jihad against the “crooked toothed Belgian CEO” resulted in an “eight-figure loss” for his employer Rocker Partners.
Cohodes’ next bizarre move was to then try to recover his massive short selling losses from the target company – the same company which he had just finished driving into bankruptcy. Short selling veterans remember this episode with clarity. Marc’s fish tales notwithstanding, his Don Quixote campaign against Lernout and Hauspie was a cause for almost daily face-palming across the entire short selling community of that era.
As told by The Wall Street Journal at that time,
Mr. Cohodes and Rocker Partners don’t always get it right. Like many shorts, he often has poor timing, and that is actually the case with L&H. The hedge fund began shorting L&H shares in June 1998 and had built up a substantial position by December 1999. But the shares were rising strongly at the time, and, facing increased risk, the hedge fund was forced to buy some of them to close out part of the short position. Amid a continued rise in the stock price, Rocker Partners purchased more shares in January, February and March of this year to continue covering its bet, racking up an “eight-figure” loss, according to founding partner David Rocker.
Luckin Coffee: Respect To Citron’s China Team
By the end of 2018, following his bungled short campaign against heavily shorted MiMedx, Marc announced that he was, for a second time, retiring from short selling. Two years later, Citron would make a similar “retirement from short selling” announcement following a different short selling debacle. But as of early 2020, Citron still had far more damage in store for the activist short selling community, which would begin with China’s Luckin Coffee.
In January 2020, influential short seller Carson Block tweeted that he was short Luckin Coffee, a $20 billion US listed Chinese ADR which was being billed by financial media as “The Starbucks of China”. To substantiate his bearish view, Block tweeted out an unattributed 89-page pdf report which spelled out the precise details about the massive fraud which was ongoing. Among the conclusions: Luckin had inflated its daily unit sales by 69% in the third quarter of 2019 and 88% in the fourth quarter of 2019; Luckin had further inflated its net selling price per item by 12.3%.
Within weeks, Block was joined by a chorus of highly respected activist short sellers who echoed his concerns, including GMT Research, J Capital Research and Ash Illuminations.
In the report tweeted by Muddy Waters, it was plainly visible that the diligence had been substantial; conclusions had been based on 11,260 hours of store traffic surveillance video diligence as well as cross-checks with 25,843 customer receipts.
Block’s warning about fraud had sent Luckin’s share price plunging by more than 30%. But by the end of the day, it closed nearly flat following a rebuttal from Citron in which Left assured the market that Luckin was legitimate. According to Left, Luckin’s financial statements had already been “confirmed” by measuring them up against industry data from third party subscription sources as well as via conference calls with direct competitors.
It took a mere twelve weeks after the initial Muddy Waters warning for Luckin’s board to announce that it had uncovered material evidence of misconduct by Luckin COO Jian Yu, which sent the stock plunging. Within a few more weeks, Luckin was delisted from the Nasdaq. Shortly after the delisting, Luckin’s auditor Ernst and Young released a public statement attempting to assert reasons why they should not be held responsible for the latest fraudulent collapse of one of its clients.
E&Y has rightfully been in the cross hairs of activist short sellers over the roles it has played with controversial companies across all parts of the globe, including NMC Health, Burford Capital in the UK and Wirecard in Germany.
Investors who relied on Citron’s reassurances in January 2020 lost billions of dollars. But we have no way of knowing if Citron stayed long after his tweet or if he flipped his position into the short term price jump. Numerous large hedge funds had been major long holders of Luckin including Stephen Mandel’s Lone Pine Capital, Steve Cohens Point72 Asset Management. When Luckin collapsed in April, Melvin Capital lost over $1 billion on this one trade alone. At the time, Melvin was still a $10 billion hedge fund, although it would soon take a history-making turn for the worse.
Left isn’t the only loser. Some top holders of Luckin, as of the end of last year, included hedge funds Lone Pine Capital, which was Luckin’s biggest owner, Melvin Capital Management (as of March 24), Point72 Asset Management and Darsana Capital Partners. The funds all declined to comment.
GSX Techedu: With friends like Citron, who needs enemas
Citron’s blunderous touting of Luckin Coffee was just the latest in a string of “black eyes” against the credibility of his brand, and his timing could not have been worse. The unraveling of the Luckin fraud served as a long-overdue wake-up call for U.S. policymakers, regulators and investors about the extreme fraud risk that China-based companies pose to our markets.
But amid the aftermath, China stocks were finally set to feel some long-overdue regulatory pressure. Investors would get the protection they deserve while short sellers stood to make a once-in-a-decade windfall. The market was well-poised for a win-win scenario.
On July 9, 2020, the SEC held a round table fact finding event where experts like Block and Paul Gillis, a business professor from China’s Peking University, would help craft US policy to better protect US investors. Not surprisingly, Left was not among the experts invited to attend.
Following Luckin Coffee, the most tantalizing target among China shots was GSX Techedu, a China-based education company valued at over $10 billion despite being a near total fraud. Just after the collapse of Luckin, Muddy Waters published a scathing report providing the overwhelming evidence of the massive fraud within GSX. Muddy was soon echoed by a chorus of other top tier activist short sellers, including Grizzly Research, and J Capital, as well as newcomers such as Scorpio VC.
Citron’s gaffe of Luckin had been nothing less than monumental. Yet with the prospects of a juicy payday in site, Citron wasted no time in attaching himself to the coattails of the short sellers seeking to expose GSX. With truly brazen effrontery, Citron had the chutzpah to assert that his was the voice which was most trustworthy against China fraud, saying,
Citron has uncovered more fraud in China than anyone. In 2011, the Chinese government was arresting locals who helped short sellers expose fraud. 2020 is completely different. The beauty of this whole thing is that we must give credit to the local Chinese consumers who helped expose fraud at GSX. This report could not have happened without the diligence and tech-savvy of the locals who assisted us.
With Citron present in GSX, the entire market knew the trade would be ripe for shenanigans. Worse still, GSX was among the largest short positions held by Andrew’s pals at Melvin Capital, a fact which was plainly visible to in SEC filings due to Melvin’s large purchases of put options.
Despite being a near total fraud, GSX would soon rise by five-fold, briefly hitting $150 before eventually crashing to its current level of around one dollar. Despite being 100% correct about the fraud at GSX, veteran short seller Block would later report that he had suffered his worst ever loss om this trade. His losses were only made manageable due to his fund’s employment of a full time risk trader to implement ad hoc de-risking strategies.
With GSX Techedu, the activist short community came to a poignant realization: the only thing worse than having Citron on the opposite side of a short trade is the misery of having Citron on the same side of a short trade.
Gamestop: Citron and Melvin are The Dumb and Dumber of Short Selling
Following his fiascoes with GSX and Luckin, it had become clear that the ill effects of the Cohodes-Batman curse were extending well beyond just Left himself; Citron had become a jinx to everyone around him. On January 19, with GameStop trading at $42, Citron sent out another of his now-famous tweets, now taunting shareholders that they were “suckers at this poker game” while stridently proclaiming that share price would be halved in short order. But instead of going down, Gamestop promptly exploded into one of the biggest short squeezes in history.
Just weeks earlier, in December 2020, Gamestop was languishing as a single-digit stock. But following Citron’s tweet it soon reached a high of $489. Unlike other past short squeezes, the cause of the Gamstop squeeze could not be attributed to bad luck; rather it was just pure, reckless stupidity. At the time of Citron’s ill-fated tweet, Melvin was sitting on a massive short position in Gamestop which it was forced to quickly cover at terrible prices due to the squeeze. In a single month, Melvin lost over $5 billion, nearly half of its assets.
Marc Cohodes has is often derisively referred to as the “General Custer of Short Selling”. In the wake of the Gamestop debacle, the Citron-Melvin duo earned their own sobriquet as the “dumb and dumber” of the hedge fund community. As the fallout from the squeeze rippled across social media sites like Reddit, public ire exploded against the entire activist short community. Gamestop had become, albeit inadvertently, Gabe and Andrew’s bungling coup de grâce against all of short selling.
Ironically, the most cogent observation on Citron’s GameStop fiasco came from the mouth of Marc Cohodes, who said,
“The people who do the real work – no one is short these kind of names. No one’s stupid enough to be short GameStop at a very low level with a huge short interest, or AMC.”
Marc then went off on a three month long social media tirade, bellowing against all manner of hedge funds, bloggers and journalists who he claimed were jeopardizing the entire system. Neophytes often interpret the intensity of Marc’s vitriol as proof positive of his commitment to the welfare of Joe Sixpack retail investors. But professional fund managers understand the true purpose of these shameless theatrics: deflection and distraction from his own malfeasance.
When Cohodes smells blood in the water, he launches his attacks instinctively. Any past notions of friendship or partnership become immediately irrelevant as everyone in sight gets sized up as prey.
Indeed, this latest jihad against his former friends and associates was just one latest incarnation of Marc’s “punch in the face” incident with Dan Yu in 2019. Elsewhere, his thinly veiled threats of violence were already drawing stern rebuke from journalists.
Slippery Steve and Teflon Gabe
Hypocrisy aside, Cohodes was not far off the mark in using various “den of thieves” metaphors to describe the activities of Plotkin and Left and their smaller hangers-on. Melvin Capital was founded in 2014 by Gabe Plotkin, a man who journalists often describe with descriptors like “self-made billionaire” and “Steve Cohen protege”. Up until 2014, Plotkin was a trader for Cohen’s SAC Capital where the pupil was known for consistently posting market-beating returns on a portfolio of as much $1.8 billion.
Plotkin’s departure from SAC in 2014 came smack on the heels of a sweeping criminal investigation into SAC traders involved in a sprawling international insider trading ring. As per New York magazine,
On July 25, 2013,the prosecutor announced a sweeping indictment against his [Steve Cohen’s] company …he called SAC “a veritable magnet of market cheaters” and suggested that Cohen bore responsibility for “institutional indifference to unlawful conduct [that] resulted in insider trading that was substantial, pervasive, and on a scale without known precedent in the hedge-fund industry.”
Multiple former SAC traders were sent off to federal prison, including former members of Plotkin’s own team.
In May 2014, SAC trader Michael Steinberg was sentenced to almost four years in prison. Steinberg had worked inside of SAC’s Sigma Capital unit, the same small team as Plotkin.
In September 2014, SAC Trader Mathew Martoma was sentenced to nine years in prison, also for insider trading among other things. Martoma had received his MBA from Stanford in 2003, but information revealed during the trial caused the university to rescind his degree, a highly unusual action. While an undergrad at Harvard, Martoma had doctored his transcripts and then tried to cover it up using fabricated computer forensics.
By this time, former SAC trader Chip Skowron was already serving five years in Club Fed for insider trading at FrontLine Partners. Skowron’s first hedge fund job was at SAC Capital, which he started just after receiving his degree from Harvard. Upon being convicted of securities fraud, Skowron was forced to pay back $32 million in past bonuses to his employer.
In 2011, billionaire Raj Rajaratnam, founder of Galleon Group, was found guilty on fourteen counts of conspiracy and securities fraud and sentenced to eleven years in prison. Criminal and civil penalties amounted to $150 million. In 2012, Rajat Gupta, a former Goldman Sachs director was sentenced to two years in prison for his role in the Galleon scandal with Rajaratnam.
It was a different era back then, an era in which not even billionaires or Goldman Sachs were above the law.. Yet despite the broader carnage on Wall Street, both Cohen and Plotkin would emerge unscathed. Despite being on the same “Sigma Capital” team as the convicted Steinberg and being implicated on one or more of his trades, ultimately there was just not enough evidence on Plotkin to formally indict him.
Big boss Steve Cohen did get formally charged in the case, but ended up cutting a history-making deal with the feds. Cohen would get no prison time and would not be required to admit guilt. Instead, he would pay a fine of $1.5 billion and face a five year prohibition against managing outside money. All things considered, the outcome for Cohen was just a mild slap on the wrist.
Nevertheless, with public scrutiny becoming intense, both men recognized that, from a practical perspective, the Cohen-Plotkin business model needed to change – at least the outward appearance of it anyway. .
Melvin Capital: Cohen and Plotkin’s game of musical chairs
Instead of being called a “hedge fund”, Cohen deftly relabeled himself as a “family office”. Instead using the name SAC Capital, Cohen changed his moniker to “Point72”. Cohen’s Point72 entity would manage over $8 billion, the majority of which was simply his own personal wealth. Next, Plotkin then launched his own entity, Melvin Capital, which was structured squarely as a traditional hedge fund – just like SAC Capital had been before it. Next, Cohen and SAC Capital …errrr…Point72… put as much as $1 billion into the Melvin entity at which time Plotkin promptly began trading.
As far as the big picture was concerned, those sweeping federal investigations comprised more of just a hiccup than they ever did a hindrance for the Cohen-Plotkin profit machine.
Just as he had done under SAC, Plotkin continued to post market-beating returns and take home nine figure annual bonuses. In 2020, amid a market roiled by COVID-19 volatility, Melvin clocked in a 53% return, allowing Plotkin to pay himself $846 million for the year. In 2019, Melvin’s gains of 46% had been described as a key component of the $1.3 billion earned by Steve Cohen and Point72 that year.
By 2020, Melvin was managing $12.5 billion in assets, a number just shy of the peak AUM managed by SAC in its former heyday. And by year end, Steve Cohen shelled out $2.4 billion to purchase the New York Mets. Some had argued that the insider trading charges should preclude his ownership of the Mets, but because he never admitted guilt, the mega-deal went through in typical Steve Cohen style – unimpeded.
Plotkin has not yet bought a professional sports franchise, but that did not stop him from becoming increasingly well-regarded amonsgt the business elite and prestigious charitable causes. In December 2020, Plotkin hosted a mentorship session to the Young Jewish Professional’s of New York titled “How Do Hedge Funds Maximize Returns”. Separately, Chabad Israel Center honored Gabe with its Young Leadership Award.
After studying journalism at NYU, Gabe’s wife, Yaara Bank-Plotkin, was spending time working with Belev Echad, a program which takes injured Israeli Defense Force soldiers on trips to New York for sight-seeing and interaction with the local Jewish Community.
Gabe Plotkin: A rookie and his money hit their final “stop”
Aside from his moniker as a “protégé of Steve Cohen”, Plotkin’s astonishing investment returns were frequently cited as proof positive that he possessed preternatural talent as a fund manager. Even in a time of distress, Citadel’s Ken Griffen would say,
“Gabe Plotkin and team have delivered exceptional results over the history of Melvin…We have great confidence in Gabe and his team.”
But underneath the veneer of competence, there was always something that didn’t add up about Plotkin.
Short selling had played a major role in his history of stellar returns, and yet one of his largest long positions had been Luckin Coffee, a near total fraud which had been poorly concealed to boot. With the GSX fraud, Plotkin did manage to get his diligence correct, going short rather than long. But when it came time to put on his short exposure, he did so by purchasing huge quantities of put options instead of just shorting common shares.
Since put positions must be disclosed in SEC filings, Plotkin’s approach meant that the entire market could easily identify which stocks Melvin was heavily short and would therefore know exactly how to launch highly profitable short squeeze raids against him. Predictably, this is precisely what happened with GSX in 2020. Throughout the year, small time traders across Reddit and Twitter began posting screenshots of Melvin’s SEC filings, zeroing in on Plotkin’s largest positions while highlighting the stocks with the greatest short interest.
By January of 2021, Plotkin’s rookie-level poker “tells” had become so widely disseminated that hordes of hedge funds – and even barely savvy retail investors – began blindly taking the the opposite side of any positions known to be held by his hedge fund, as evidenced by the history-changing short squeeze on Gamestop.
Following the Gamestop carnage in January, Melvin posted a 53% loss and Plotkin personally lost $450 million in the process. Steve Cohen and Ken Griffin attempted to come to Plotkin’s aide, injecting $2.75 billion in new “life support” money into Melvin allowing the fund to continue trading. But the rookie moves only worsened.
In the words of Marc Cohodes,
“The worst thing that happened to the market was SAC and Citadel bailed out Melvin. They should have let them go out of business, and they should let all those guys go out of business. That way, everyone will learn the lesson that you’re not too big to fail.”
Another Batman abandons short selling
Following the Gamestop debacle, on January 29, 2021, Andrew Left announced that after 20 years as an activist short seller he would now abandon this investment discipline and would instead focus on publishing “multi bagger” long ideas for individual investors.
In his own words, Citron admitted that he “had become the establishment”.
True to form, Citron’s “farewell to short selling” was an conspicuous echoing of the “farewell to short selling” song which was sung by Cohodes following his own string of failed short bets two years earlier.
VALIANT CAPITAL: A VISIT TO THE ANTI-MELVIN TIGER CUB
During his freshman year at Stanford, Edwin Dorsey was relentlessly thrusting himself into the offices of the many short selling hedge funds located in the triangle which encompasses Stanford, San Francisco and Berkeley. In several recent interviews, Edwin describes a memorable instance where he managed to cajole his way into the offices of a highly skeptical short selling fund which sits high up within a San Francisco skyscraper.
Although Edwin discretely refrains from uttering aloud the name of this hedge fund, most in the activist short community would strongly suspect that he is referring to Valiant Capital, the $2 billion hedge fund founded by billionaire Chris Hansen who also is owner of the Golden State Warriors.
Valiant founder Chris Hansen is part of the small and ultra-elite clique of hedge fund alumni who descended out of Juilan Robertson’s Tiger Management hedge fund. Known as the “Tiger Cubs”, these handful of billionaires are easily recognized as being the wealthiest – and most influential – group of hedge fund managers in the world. Aside from Chris Hansen and Valiant, notable figures in the ultra-elite Tiger Cub clique include familiar names such as Bill Hwang of Archegos, Chase Coleman of Tiger Global, David Greenspan of Slatepath Capital and Stephen Mandel of Lone Pine Capital.
But certainly not all Tiger Cubs sport the same stripes.
For example, Tiger Cub Bill Hwang is a now-disgraced former hedge fund manager who is best known for the obscene profits he raked in by running a short squeeze on the near total fraud that was GSX Techedu. When GSX inevitably collapsed, the fortunes of Hwang and Archegos collapsed along with it. At the beginning of 2021, Archegos was reportedly managing over $20 billion and Hwang was a billionaire.
Compared to hapless bumblers like Archegos and Melvin, Valiant is a totally different breed. Even within the rarefied world of billionaires and hedge funds, many agree that Valiant is as smart as the smart money gets – a sort of anti-Melvin, if you will.
Valiant is well known for playing aggressively on both sides of many trades, long as well as short. From looking the fund’s SEC filings it is hard to miss that many of the large positions held by Valiant, both long and short, tend to consistently end up as the outspoken targets of outspoken public commentary from Marc Cohodes, Andrew Left, Dan Yu or Edwin Dorsey, as well as others with close ties to Marc’s circle of influence.
Edwin’s visit to Valiant’s office in San Francisco’s financial district would no doubt have been memorable for the youngster; it boasts breathtaking views of the San Francisco Bay from its perch atop the prestigious One Market Street building.
Just steps away, one can catch the ferry to Alcatraz Island, the notorious prison which once housed famed mafia criminal Al Capone. In today’s media Capone is rightfully portrayed as a vile and contemptible criminal who thugged his way to success by bribing and blackmailing public officials and law enforcement. But in the 1930s Capone’s name and persona were often given positive spin by corrupt or complicit journalists who would overemphasize the narrative that Capone was just a savvy businessman and generous “philanthropist”. Following his criminal conviction, the wealthy Capone ended up in Alcatraz prison where he eventually died of syphilis.
Capone apparently reveled in attention, such as the cheers from spectators when he appeared at ball games. He made donations to various charities and was viewed by many as a “modern-day Robin Hood”.
“Doing Business The Right Way”
Valiant fund managers have always been notoriously averse to publicity and,with the exception of the occasional platitude, the fund appears to go to great lengths to keeps its name out of the press. Yet two names have often popped up with great regularity: a well connected Israeli named Dror Bar-Ziv and a waifish, effeminate Brazilian named Eduardo Marques.
Dror is a well-connected Israeli who attended Harvard in the late 1990s where he excelled as a swimmer / water polo player before working his way into the hedge fund business. Dror eventually left Valiant and is now a partner at Blue Sparrow Partners in San Francisco, just up the street from Valiant on Market Street. When Dror goes on vacations with Marc Cohodes, Marc describes his friend as “camera shy”.
Eduardo Marques was the short book PM at Valiant who is often credited with doing the behind-the-scenes work which allowed Financial Times journalist Dan McCrum to expose the massive fraud that was Germany’s Wirecard. He is also credited with doing similar behind-the-scenes work which led to the collapse of other major stock frauds in Europe, the US and in Canada. Among short sellers, he is known as the “smart money”, but is also widely resented for overstepping bounds and stealing or hoarding the most compelling short opportunities.
Eduardo recently left Valiant to launch his own hedge fund, under the name Pertento Partners. Similar to his role in cultivating Edwin, Marc mobilized his social media following to get attention – and money – flowing towards Eduardo’s new venture. Marc pounded the table on social media, encouraging his audience to extend a helping hand to Eduardo – and to do so at the direct expense of “over-leveraged sports team owner” hedge funds. The last part was a gratuitous barb cast at some former friends within Valiant who Marc now regards as enemies.
Dror and Eduardo are men with decades of hedge fund experience who have vast hedge fund resources at their fingertips; although their involvement may not be well known, it does make intuitive sense that they were the brains behind the downfall of major frauds. But when Cohodes attempts to convince his readers that young Edwin Dorsey played a major role in exposing Questcor-Malinkrodt, the narrative feels a bit concocted and contrived. Edwin was just a few months out of high school at that time and had never had a real finance job prior to a freshman level internship working with hedge fund pals of Cohodes himself.
SOPHOS CAPITAL, THE JOKER AND THE THIEF
With Valiant, young Edwin’s perseverance laid the foundation for a valuable future relationship with one of the worlds most successful and savvy hedge funds, a fund which was highly aggressive with both long and short trades. But when it came time to get a college internship, Edwin ended up getting a job closer to campus, working for Sophos Capital, the world’s largest short-only hedge fund which happened to be conveniently located in Menlo Park, walking distance away from his classes at Stanford.
Sophos was founded in 2014 by Jim Carruthers, the legendary short seller who had previously run the short selling desk within Dan Loeb’s Third Point Capital. Perhaps not surprisingly, young Edwin’s new employer just happened to be a longtime friend and business associate of Marc Cohodes. Marc and Jim have been close friends since well before Edwin was born.
Still just a freshman in college, Edwin now found himself working within the worlds largest short-only hedge fund and in possession of the coveted Batman twitter handle which itself was being vociferously boosted online by famed short seller Marc Cohodes. With such a combination, it would be hard to imagine how success could fail to follow for the precocious nineteen year old.
All he needed now was an incendiary report to publish. And within Sophos, incendiary research material was in ample supply.
Shortly after his interview at the chicken farm, Edwin created the new “Batman” twitter account and just a few weeks later his first report on Care.com was hot off the presses and making waves in the media. Looking at earlier work coming out of Sophos, no one should be surprised at the deep dive nature of the research or at tremendous shock waves that would pummel Care.com and its executives.
As with Marc Cohodes, Sophos and Carruthers are well known for being among the most sophisticated (and even “nasty”) veterans in the short selling business. It is something they pride themselves on.
Similar to Eduardo Marques, Jim Carruthers is widely regraded as a highly valued “source” for financial media including Roddy Boyd, the investigative journalist whose coverage of Insys Pharmaceuticals led to criminal indictments of 23 senior executives in a far reaching scandal involving kickbacks and bribery which fostered sales of deadly opioids.
Young Edwin’s inaugural report under the auspices of that Batman moniker would quickly establish his reputation as a precocious and courageous boy-wonder fraud detective. In the argot of public relations, Care.com was the all important “origin story” which would be necessary to make Edwin an influential media personality worthy of mainstream commentary.
However for those who bother to ask even the simplest of questions, Edwin’s version of the logic and facts quickly fall to pieces amid the numerous holes and contradictions in his oft-repeated narrative. Like the earlier actors who had played the Batman role, the facts behind Edwin Dorsey have more in common with super villain than they ever could toward super hero.
Edwin’s use of click-bait sensationalism is well known across Fintwit, even among those who generally seem to like the youngster.
His report would conjure up images of violence and abuse falling upon the heads of unsuspecting children. At a time when the #MeToo movement was heavily trending in the headlines, Edwin’s narrative would revolve around the fact that he created a fake profile on the Care.com platform using the name “Harvey Weinstein” for his account. Given the media flow around “Weinstein” at that time, simply incorporating that word into his reporting would automatically attract millions of extra eyeballs to his report with the most monstrous of context.
Despite the boyish appearance of its latest messenger boy, the Batman franchise, once again, lived up to its formidable reputation. The facts against Care.com were damning and the method of presentation was compelling. Every aspect of this latest report was on par with the best reports published by the previous caped crusaders Elgindy, Gotham and Citron.
There was, of course, one small oddity. Despite the sensational nature of his findings, the stock barely budged and later rebounded. It would stay frustratingly strong until further smear salvos could be lobbed at it in follow up reports published elsewhere. Some short sellers grumbled that the report had flopped solely because it had been published as a pdf document on the website Scribd, an alternative which is regarded as vastly inferior for publishing financial research.
In 2017 most short sellers were still very active on Seeking Alpha, but since Edwin had already been de-indexed from that site he could no longer publish there. Scribd accounts can be created in a single day and – in contrast to Seeking Alpha submissions – content posted to Scribd is not subjected to editorial approval process. Later, Edwin would migrate his “Batman” reports over to Medium.com. Following that, he would migrate yet again to Substack under a different moniker.
FROM THE BAT CAVE TO THE BEAR CAVE
Following Edwin’s Care.com reports, the company would indeed be best by all manner of corporate governance volatility, including management and board resignations. The share price did plunge for a time, but ultimately the company was bought out by IAC Corp. The hullabaloo notwithstanding, for short sellers, the trade had been a dud.
Furthermore, Edwin’s Batman escapade had also landed him deeply in hot water with Stanford University. In carrying out his sleuthing, Edwin had not used the internet facilities of his hedge fund employer Sophos, but instead he used the resources of Stanford – violating numerous university polices in the process while exposing the entire university to significant legal liability.
As a short seller, Sophos had been struggling for several years. And by late 2020 it was already trembling on its last legs. By early 2021 the “worlds largest short only hedge fund” was shutting down completely.
Edwin had graduated form Stanford in mid 2020 and was pounding the digital pavement looking for a legitimate hedge fund job. But with no sensible offers, he took the path of least resistance: Edwin would continue blogging about the stocks in which his hedge fund acquaintances had large long or short positions.
For all of these reasons, Edwin’s use of the Stocklemon “maggot run” approach made intuitive sense and he folded down his old “Batman” persona, pivoting into a newly conceived iteration; Edwin’s “bat cave” motif would now be slightly re-positioned into a new endeavor called “The Bear Cave”. And just like that, any past negative associations with Batman, Dan Yu, Andrew Left, Sophos or the Stanford debacle would be left in the past where they would be forgotten over time.
Still Edwin’s focus on relationships continued to pay its handsome dividends. Even without the benefit of a mansion or a Ferrari, the fresh-faced recent graduate found himself being profiled in a full length fawning article in Institutional Investor which celebrated him as the precocious boy-genius of activist investing.
Edwin’s original mission statement has been unambiguous about his commitment to exposing corporate malfeasance. And it was this commitment which allowed him to cash in on the media attention which so often courts successful short sellers like Carson Block and Jim Chanos. But, as is so common among the Cohodes-Batman alumni, it would not take long for Edwin to pivot into a bullish tout who takes long positions ahead of his reports touting the diciest of companies.
For young Edwin, this calculated and formulaic trajectory has clearly paid off handsomely.
OTONOMO: PUMP AND DUMP MEETS CORPORATE ESPIONAGE
In March of this year, Edwin launched a full fledged media blitzkrieg touting the vast upside potential of a soon -to-be-completed SPAC for Otonomo Inc., which happens to be an Israeli company deeply involved in the corporate spy-for-hire industry. The SPAC transaction, under the name of Software Acquisition Group II, or SAII, was still mid-process and became the subject of an unusual amount of controversy.
And from there the controversy would quickly deepen. Prior to launching his media campaign touting the Otonomo SPAC, Edwin could be seen purchasing a massive position in shares and options/warrants of the heavily shorted security, while insisting to his followers that he intended to hold his position for an extended period of time.
Following the implosion of Nikola Motors in 2020, SPAC’s have increasingly become the focus of heightened public scrutiny. Instances of fraud and malfeasance have been pervasive among the SPAC asset class and many are being prosecuted as criminal matters by the Department of Justice. Yet even against this already low bar, Otonomo stands in a class all it own as a worst-in-class exemplar of market immorality.
Otonomo is an Israeli company in the red hot space of “automotive tech/data”. But with just a few clicks online, one finds that Otonomo is in fact closely linked to Ulysses group, the shadowy corporate surveillance firm which offers cellular interception and jamming technology, hidden video recorders, and military training.
Amid shocking new revelations about the targeting of journalists and activists by Israeli spy-for-hire shops like Black Cube and NSO group, one marvels that Edwin would sink to the level of being a social media enabler for such an ethically dubious SPAC transaction which will undoubtedly line the pockets of very obvious corporate bad actors.
Otonomo is known to have used the consulting expertise of McKinsey & Co to fine tune its targeting of customers and its largest shareholder happens to be the government of Saudi Arabia. Any simple Google search for Otonomo yields dozens of alarming reports of the firm’s involvement and ties to the Israeli spy-for-hire business. Sadly, such business is booming for such anti-activist bad actors, and it is largely thanks to the efforts of its financial and media enablers being motivated more by money than by morality.
“A surveillance firm is spying on people using technology that tracks the real-time location of cars in almost every country. A document obtained by Motherboard shows that the Ulysses Group tracks people’s cars by looking at the data collected and sent by their components….Ulysses can provide our clients with the ability to remotely geolocate vehicles in nearly every country except for North Korea and Cuba on a near real-time basis,”
Vice.com published lengthy expose report saying,
Otnomo’s data offering is a “privacy nightmare,” Adam Schwartz, a staff attorney at the Electronic Frontier Foundation told Motherboard. Schwartz added that the EFF has been concerned that the location data of vehicles would be “bundled and sold to data brokers, who want to turn a profit,” and pointed to how Otonomo had some of this data on their public facing website.
Gaining access to some of Otonomo’s data is fairly straightforward. Motherboard created a free account on Otonomo’s website using a Gmail address, entered a fake company name, and was able to request a spreadsheet of 10,000 location points from a specific U.S. state soon after. This data included a unique identifier Otonomo assigned to the device or vehicle, the recorded latitude and longitude, a hash of the source or provider of the data, and the street the data point related to.
The researcher source independently repeated this process and built a large collection of Otonomo data spanning different states and countries across time. Motherboard granted the source anonymity to protect them from retaliation from Otonomo. The source then determined which locations were most frequently visited by each vehicle in the data to find a potential home location.
Even prior to the release of his Otonomo promotion, the market was well aware what Edwin was about to publish; his Twitter followers were publicly predicting that his report would be released that very Friday – just in time for options expiration, they observed.
On March 18th when he publicly released his sensational Otonomo bull thesis, Edwin made the headlines and bullet points visible to hundreds of thousands of viewers, but kept the substantiating details behind his paywall, available only to those paying him subscription fees. This practice of selling ones research to promote stocks in which one is also personally invested in often referred to as “double dipping” and is a highly questionable practice.
Contrary to his original schitck about not taking positions in the companies he writes about, Edwin’s disclosure revealed that he had a massive long position in both shares as well as options/warrants. Edwin claimed that Otomono was a 40% position for him while insisting it was his intention to hold it. The stock ticker “$SAII” quickly began trending on social media and Otonomo was soon at the center of a media frenzy.
Benzinga asked “Could Otonomo Be The Best Spac Deal Of 2021 The Bear Cave Thinks So”. Mercifully, Benzinga did not refer Edwin as “The Stockmarket’s Batman”.
StreetInsider blared that “SPAC Software Acquisition Group Inc. II (NASDAQ: SAII) gains as short seller Edwin Dorsey touting as a SPAC to own”. From there, the coverage soon percolated out to news release services of Seeking Alpha, MarketInsider and many others. But this was just the beginning of Edwin’s stock promotion blitzkrieg on Otonomo.
Edwin’s involvement was certainly a boon to the insiders of Otonomo. Just days ahead of that damning report’s release date the SPAC price began a steep climb as tremendous volume began steadily pouring in. But the SPAC price would soon crater back down to its $10 SPAC redemption price – where most would argue it should have remained all along. Many of Edwin’s paying subscribers now found themselves stuck underwater after buying shares of Otonomo on the back of Edwin’s vocal enthusiasm. Then, despite their desperate pleas for information, Edwin simply went dark and refused to provide his followers with updates on the stock itself or share on any changes to his personal holdings of the shares and warrants.
Over the next few weeks after his initial report, Edwin embarked on a full fledged media tour, making the rounds with a variety of bloggers and podcasters, particularly those known to have large followings in the stock promotion community. Notably, on March 31st, Edwin created a 52 minute video with Andrew Walker of the hedge fund Rangley Capital to tout the enormous potential of Otonomo as a long idea.
As a hedge fund, Rangley is well known for touting its long positions in dicey microcap companies, and the fund’s enthusiasm seems to often come at the very time those companies happen to be in the midst of heavy stock promotion across social media. Moreover, because Edwin had been booted from Seeking Alpha, Rangley’s coverage of Edwin on that platform was a necessary component if retail investors were going to be properly targeted in this promotion.
The Rangley hedge fund is also well known for lending its media muscle to small bloggers in circumstances where they can be helpful in promoting its long-biased bets. The 52 minute “interview” between Edwin and Walker is little more than a thinly-veiled stock tout session filled with slick one-liners and self-serving hyperbole being traded back and forth between the two.
As a useful point of reference, we suggest readers take a look at this more recent video from Rangley where Mr. Mr. Walker conducts a similar “interview” with Artem Fokin of Caro-Kann Capital. Caro-Kann is the hedge fund which since 2019 has been attempting to deflect the fraud allegations against Burford Capital which were unearthed by Carson Block of Muddy Waters Capital.
Artem Fokin’s video with Walker is so laughably awful that we consider it to be essential viewing for anyone interested in understanding the mentality of the promotional enablers of corporate malfeasance.
Yet even here, Edwin’s stock promotion blitzkrieg was still not finished. On April 20, Edwin went on to post a full length 42 minute video where he purports to “interview” the management of Otonomo. In fact, this staged video is little more than a choreographed infomercial session providing the Otonomo insiders a platform on which to deliver 42 minutes of self-serving, self-promotional hyperbole to Edwin’s curated audience of 17,000 stock hungry followers.
THE GROOMING OF JOSHUA MITTS
In April 2020, Cohodes co-authored an opinion piece for the Financial Times in which he thundered on about the need for new regulations to address securities manipulation running rampant across social media, and much of his ire was directed at activist short sellers.
According to Cohodes,
Many bloggers and social media personalities who promote or attack stocks do not conduct a deep investigation of the companies involved. Instead, they republish theses acquired elsewhere and buy and sell quickly to make a fast buck. If you truly believe that a stock price is off — either because the company is a hidden gem or a fraudulent trash heap — he or she should be willing to hold open a position consistent with the advice he or she is giving to other investors.
Marc’s co-author for that piece was a theatrical young assistant professor from Columbia named Joshua Mitts who uses this type of media exposure to advertise his “consulting services” to controversial companies who have fallen into the cross hairs of activist short sellers.
In August of 2019, that same young academic used the Financial Times as a pulpit from which to preach about what he claimed was evidence of layering and spoofing being used to manipulate shares of Burford Capital following a bearish report by Muddy Waters earlier that month.
Mitts’ melodramatic performance was highly successful in creating a diversion for Burford, distracting the market’s attention away from the real issues plaguing its share price – namely the red flags pointing to malfeasance by Burford management. Mitt’s allegations were later investigated by the UK’s Financial Conduct Authority which determined that his quasi-allegations of layering and spoofing were utterly meritless.
As a result, the FT was forced to do the moonwalk, shooting down those quasi-allegations of impropriety against Muddy Waters.
The London Stock Exchange has said it found “no evidence whatsoever” that traders manipulated the share price of litigation funder Burford Capital, calling the company’s allegations “completely detached from reality”.
Time and again, Mitts’ contrived “analysis” has been debunked as soon as it is subjected to scrutiny by those with legitimate market expertise. Short sellers such as Muddy Waters have demonstrated beyond doubt that they have zero capability of performing the sophisticated trading activities required to perform layering and spoofing manipulation, and that their trading activities can be fully explained by the normal de-risking techniques which are standard market practice for all hedge funds during times where their positions exhibit abnormal volatility.
And yet even a stern rebuke from the FCA has done nothing to slow Mitt’s recycling of self-serving conspiracy theories, which the young assistant professor continues to peddle to corporate bad actors in their time of need.
OUTLANDISH OPTIONS ACTIVITY: THE “EDWIN EFFECT”
For Cohodes and Mitts to rail about improper options activity is rich fare indeed. As many can easily attest to, the options activity around young Edwin’s reports has become so conspicuously egregious that Fintwit observers have dubed it “The Edwin Effect”.
Marc frequently displays many of the traits associated with the diagnosis of a “narcissistic sociopath”. And the outrageous options activity seen around Edwin’s reports is a brilliant demonstration of contradictions which lie beneath his elaborate facade. Aside from the threats of doxing or violence, Marc is often seen engaging is acts of gaslighting, “lovebombing” and triangulation to keep his scheme afloat.
Sec needs to put the uptick rule back in place. They took it off in 2008.