Andrew Left recently blocked public access to all past reports on the Citron Research webstie. After two decades of unchecked charlatanism, signs are mounting that Citron’s end is near. Things could soon get ugly.
In the annals of short activist history, 2021 was the year that would go down as “The Year of the Quick and the Dead”. Amid worsening technical market conditions and a chaotic uprising by retail investors — the self described “Apes” — short activists who lacked the ability or discipline to adapt their risk management practices to the new environment faced a merciless and unavoidable extinction. By the end of 2021 assets managed by activist short hedge funds had plunged by nearly 80% since levels just three years prior. Fortunately for the health sanity of overall markets, activist shorts who remained nimble and adapted their business models and risk management practices were able to survive, and occasionally even thrive.
In December 2021, with less than three weeks left before Christmas, established short activist Ben Axler of Sprucepoint Capital released a scathing forensic investigative short report highlighting a plethora of red flags at Nuvei Corp (NASDAQ: NVEI) which, in his judgement, raised concerns about possible fraud. The market strongly agreed with Sprucepoints’ assessment as shares sold off by as much as 50% by the close of markets. Spruce doesn’t disclose its post report derisking practices but logic would expect that he engaged in prudent derisking. Spruce continues to be a dedicated short only activist, who seeks to fill the void left by the demise of investigative journalism and such derisking is a necessary business survival strategy.
In what has now become a familiar maneuver , Citron Research put out several tweets which sought to minimize — or even discredit — the red flags highlighted by Sprucepoint. In short order, the Nuvei shares began a savage rebound against short sellers. Citron, once regarded as a highly respected short activist, has now made squeezing shorts a core element of his newly adapted business model. There is no shortage of memorable examples. In 2020, Citron announced that he was long on shares of Chinese ADR Luckin Coffee, rebutting a scathing report which had just been released by hedge fund Muddy Waters Capital, a famed activist short hedge fund which more than a decade of expertise of on the ground china expertise.
Ironically citron was the cause of the Ape rebellion when his poor judgement on technical factors caused the history-making short squeeze on troubled GameStop Inc.
Citron’s recent mental meltdown should, perhaps. come as no surprise. Prior to 2021, Citron had spent many years cashing easy checks he Ape uprising of 2021 wrought devastation on Citron that was far more extensive than many would realize. The epic short squeeze in Gamestop not only wrecked Citron’s balance sheet and credibility, but it also cast into distress the viability of Melvin Capital, Citron’s long term sponsor and benefactor.
By 2022, Gabe Plotkin would be announcing that Melvin would be looking to unwind.
https://www.cnbc.com/2022/05/18/melvin-capital-says-it-plans-to-unwind-funds.html
Citron has blown up his fund several times over the past decade. It seems that he regards activist short selling as simply an occasional means to an end as opposed to using it as a force for market reform, investor protection and societal good.
Given Citron’s latest transgressions, the current moment seems apropos to review the curriculum vitae of this on-again-off-again publisher of short seller reports.
A Brief History of Citron Research
Back in early 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.
https://citronresearch.com/valeant-could-this-be-the-pharmaceutical-enron/
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.
https://www.vanityfair.com/news/2016/06/the-valeant-meltdown-and-wall-streets-major-drug-problem
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.
https://www.reddit.com/r/stocks/comments/dn0j7f/my_dad_is_was_the_most_theatrical_shortseller/
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.
https://stocklemonaide.blogspot.com/2006/06/why-spend-your-own-money-when-you-can.html
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.
https://www.goodetrades.com/2007/08/can-you-trust-the-stocklemon-part-4/
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.
https://www.goodetrades.com/2007/08/can-you-trust-the-stocklemon-part-3/
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.
https://www.laweekly.com/barry-minkow-scam-leads-to-1-billion-verdict/
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.
https://www.businessinsider.com/shopify-citron-andrew-left-business-dirtier-than-herbalife-2017-10
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.
https://citronresearch.com/wp-content/uploads/2018/09/Our-Final-Word-on-TLRY-before-50.pdf
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.
https://www.labaton.com/en/about/press/upload/Tesla-Complaint-for-Posting-2.pdf
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.
https://storage.courtlistener.com/recap/gov.uscourts.cand.331654/gov.uscourts.cand.331654.1.0.pdf
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”.
https://citronresearch.com/wp-content/uploads/2019/03/Citron-Expects-Tesla-Rebound-to-320.pdf
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.
https://citronresearch.com/wp-content/uploads/2019/08/Citron-Apology.pdf
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.
https://www.bloombergquint.com/markets/muddy-waters-wins-twitter-war-with-citron-over-luckin-coffee
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.
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.
https://citronresearch.com/wp-content/uploads/2020/04/GSX-Conclusive-evidence-final.pdf
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.
https://www.bloomberg.com/opinion/articles/2018-02-16/short-sale-death-threats-are-a-bad-idea
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.
https://www.bloomberg.com/news/articles/2013-03-17/sac-s-plotkin-said-to-have-been-tipped-by-analyst
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. .
https://dealbook.nytimes.com/2014/08/15/a-former-top-sac-capital-trader-names-new-hedge-fund/
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.
https://markets.businessinsider.com/news/stocks/top-15-highest-earning-hedge-fund-managers-of-2020-2021-2?
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.
