The Dark Side of Andrew Left
Citron Research is a one-man show run by Mr. Andrew Left, whose fraudulent career began with a huge black mark. In 1998, in his first job, Mr. Left was found by the National Futures Association to have: “MADE FALSE AND MISLEADING STATEMENTS TO CHEAT, DEFRAUD OR DECEIVE A CUSTOMER IN VIOLATION OF NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). ” Mr. Left was debarred for three years, among other punishments. This finding can be found on the website of the National Futures Association.
After being debarred, Mr. Left was employed as the President & CEO of Detour Media in 1999. But in February 2002, his company sued him for stealing six checks worth about $25,000. In Detour Media’s official SEC filing, the company alleged Mr. Left’s “fraud and deceit, negligent misrepresentation, breach of fiduciary duty and unlawful monetary conversion.” This legal paperwork, as well as the final judgment (Mr. Left had to pay $26,445.22) can be found on Court orders Mr. Left to pay $26,445.62 for lawsuit (fraud and deceit).
In 2005, Mr. Left founded www.stocklemon.com, a predecessor to www.citronresearch.com. On this website, he slammed a company called WHIS, and one of WHIS’s principals, Mr. Salim Rana. He fabricated information about Mr. Rana (calling him a thief who steal from the elderly), and Mr. Rana sued Mr. Left for libel. Mr. Left failed to comply with the court’s order for discovery. As a result, the court issued a judgment, ordering Mr. Left to pay Mr. Rana $2,500,000 for damages. The documents can be found here: Court orders Mr. Left to pay $2,500,805.64 for lawsuit (libel)
In 2010, Mr. Left again ran into trouble with the law, in an altercation with a businessman. He was arrested in Florida. In addition, the records show that he was charged for “failing to appear.” His arrest record, along with his mug shot, can be found here.
One has to wonder why an investor would trust the investment advice of someone with a record of fraud, deceit, and unlawful behavior.
Andrew Left’s company Citron provides investment advice, typically in the form of shorting stocks that Citron believes to be fraudulent or have “terminal business models.” Citron also invests its own money, and presumably makes its short trades before its readers do, and gets in at a better price than its readers.
Citron began shorting and attacking Chinese stocks in 2006, with a good record until mid-2011. This “golden period” was made possible by a wave of reverse mergers that took a number of fraudulent Chinese companies public. Citron and its customers made good profit from 2006 until 2011 by exposing these fraudulent companies.
However, in 2011, as more scrutiny is applied in US and China, Citron found that the “easy picking” days were over, and that it had become very hard to find more fraudulent Chinese companies. This situation led Citron to a more radical road. By then it had strong financial returns, and its negative report on any Chinese company with any reason would cause its stock to crater. It was no longer necessary to be right! Citron could short a legitimate stock, write a negative report, others would short or sell in a panic, and then Citron could pocket a nice profit quickly, whether the report was truthful or not!
One might ask: how can they get away with a false negative report? This is where the information asymmetry comes in. Chinese companies are a mystery to the American investors. Citron advertises itself as “Citron knows China“, and with its earlier track record, the American investors were eager to believe what it said, with no means or desire to verify. Few bothered to find out that this short seller himself can’t read or speak Chinese and hasn’t put his feet on China for ten years, according to an interview he took recently.
Emboldened by this malicious realization, Citron started down the slippery slope of attacking companies arbitrarily. In June, 2011, Citron attacked Harbin Electric, on which it issued five reports, claiming that “shareholders are holding a company that is a potential 0….yes a 0, as in donut. ” Citron’s report Caused Harbin share price to drop from $16.50 to $8. However, to Citron’s chagrin, Harbin was acquired a few months later for $24 per share.
In November 2011, Citron began its series of attacks on Qihoo, with a target price of $5 (Qihoo was at about $18). Qihoo responded to each attack forcefully, and media concluded “Citron lacked a basic understanding of Qihoo in the beginning”. Today, Qihoo stock is trading at $23.
In March 2012, Citron made an unusual buy recommendation on Sohu, with a target price of $90 (it was at $54). Today, Sohu is trading at $39.
Perhaps desperate that it hasn’t been right with Chinese stocks for over a year, or perhaps facing margin calls from its poor bets, Citron rushed and came out with the ill-fated report “Qihoo’s entry into search puts SOHU in play”. This report was full of holes, including misunderstanding Sohu’s basic products, fabricating a non-existing product, and zeroing out $98M of revenue.
Even more damning to Citron’s fate, an expert decided to rip apart Citron’s malicious scheme on information asymmetry. Dr. Kai-Fu Lee (former President of Google China) wrote a paper “China Short Sellers: Exposing Fraud, or Practicing Fraud?” This paper ruthlessly exposed Citron’s ignorance and deception, and this time the market ignored Citron’s recommendations, with both stocks now trading at the same level.
Dr. Lee’s report not only discredited Citron, but also created awareness (and disgust) in China about Citron. A group of about sixty Chinese business and investment leaders joined together to condemn Citron. This website was created for these voices to get heard.
Shortly after Dr. Lee’s report, another report authored by nine top web game CEOs in China again challenged Citron’s reports about games. These CEOs proved that Citronlacked basic understanding of the Chinese gaming market — Citron didn’t understand different types of gaming companies, and not even how to measure games. Citron challenged certain numbers and even bet 100,000 RMB, but the nine executives proved the numbers were accurate. These executives concluded Citron’s analysis is “as amateurish as its claims outrageous.”
Finally, a group of 65 Chinese business leaders joined together to condemn Citron for its inaccurate and misleading reports, and call for investors not to be fooled.
Citron’s days of deceit are over!