Citron Research has been charged by the SEC with market manipulation, including shares of Freedom Holding Corp.

According to the American regulator, false recommendations by the analytical company misled investors and the public.

The U.S. Securities and Exchange Commission (SEC) has accused activist investor Andrew Left and his Citron Capital of fraud. The regulator believes that Left misled his subscribers by publishing false and misleading statements regarding his supposed stock trading recommendations.

The SEC’s complaint alleges that Left used his popular Citron Research website and related social media platforms on at least 26 occasions to publish his investment recommendations. In his posts, he recommended taking long or short positions in stocks and represented these positions as consistent with his own and Citron Capital’s holdings. The price of the target stocks moved more than 12% following Left’s recommendations.

According to the SEC’s complaint, once the recommendations were issued and the stocks moved, Left and Citron Capital quickly reversed their positions to capitalize on the stock price movements. This means that Left bought back stocks immediately after telling his readers to sell, and he sold stocks immediately after telling his readers to buy.

The SEC estimated that this scheme allowed Left to illegally gain $20 million in profit. In one instance, Left publicly stated that he would stay long on a target stock until the price hit $65 when, in fact, he and his fund immediately began selling the stock at $28. The regulator also alleges that the investor falsely represented to the market that Citron Research was an independent research outlet that had never received compensation from third parties to publish information about target companies when, in fact, the defendant had entered into compensation arrangements with several hedge funds.

The origins of the story

Even though Andrew Left had done a lot to create an image of a “truth-teller” and anti-fraud activist in public companies, he used unethical practices at the beginning of his financial career. In the early 1990s, he worked as a sales manager at Universal Commodity Corp., calling potential clients and offering them opportunities to make a profit on the futures market. In 1994, the National Futures Association accused the brokerage company, including Left, of unethical business practices.

Then Left started to trade on the stock exchange on his own, looking for stocks with artificial overvaluation and taking short positions on them. In 2001, he created an online blog where he shared his personal investigations of activities by various public companies, disclosing fraudulent signs. Six years later, this resource was renamed Citron Research.

Over the past 20-plus years of Citron Research’s work, Left has published more than 100 posts with recommendations to open short positions on targeted companies, including well-known brands such as Shopify, Valeant Pharmaceuticals, Tesla and Evergrande.

In April 2023, Citron Research issued an article about Freedom Holding Corp., an investment company from Kazakhstan. In this material, Left accused Freedom of manipulating its shares, publishing false financial statements and committing other illegal actions.

Freedom Holding Corp immediately denied all these accusations. In the fall of 2023, independent members of the Company’s board of directors hired Morgan, Lewis & Bockius LLP and Forensic Risk Alliance for an external audit of its operations. After several months of rigorous research, the hired experts confirmed that Freedom’s business had been growing naturally without manipulation of financial reports and share prices, and firmly followed both internal compliance and international sanction regimes.

As a result, the publication had little effect on the company’s market value. In fact, six months after Citron Research issued its report, Freedom Holding Corp.’s share price rose by 20%.