Wall Street’s Bounty Hunter Abandons Short Selling Research

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The bounty hunter of Wall Street has finally met his match.

Andrew Left, who’s taken on everything from drug companies to Chinese real estate firms, said his Citron Research will no longer publish short selling research, ending the firm’s two-decade run as one of Wall Street’s best-known contrarians.

Citron will instead focus on what may seem like the only logical move in a world of ever-rising equity markets and low interest rates: long bets.

“Twenty years ago I started Citron with the intention of protecting the individual against Wall Street -- against the frauds and the stock promotions,” Left said in a video posted on YouTube. Since then, he added, the research shop lost its focus: “We’ve actually become the establishment.”

Citron’s long bets more than doubled on average last year, Left said. And so starting with a report this Monday, the firm plans to roll out ideas for companies that “can use the support of a whole new generation of shareholders that have an appetite to buy stocks,” Left said.

The improbable twist to Citron’s long run in the world of shorts came after an equally improbable army of day traders, congregating on Reddit, drove the research shop to a staggering loss on its bearish bet on GameStop Corp.

Trading Frenzy

The trading frenzy, which brought hedge fund Melvin Capital to its knees, underscored how betting against stocks has increasingly become a Sisyphean endeavor. And it’s even more so today, as the rally is fueled by a new generation of investors, egged on by figures like Dave Portnoy proclaiming that “stocks aways go up.

“It’s a sign of how brutal and difficult it is,” said Marc Cohodes, who says he’s known the Citron founder for 20 years. “People who are bad would love nothing more than for the short community not to exist. You could go through fraud after fraud after fraud because there’s nobody there to put you out of business.”

Industry veterans expect others to follow Left’s lead and stop publishing reports on their targets. Those who remain may have to tweak their approach.

“I hope he continues to use his gift to root out market abuse,” said Fahmi Quadir, founder of New York hedge fund Safkhet Capital, which doesn’t publicly publish its research reports. “I wish him the best in his new plans.”

Left, 50, didn’t respond to requests for comment. The Friday video didn’t specify whether he would stop shorting stock altogether.

Boiler Rooms

Born in Detroit and raised by a mother who worked as an office manager and door-to-door salesman, Left studied political science at Northeastern University in Boston. He entered the world of finance in the early 1990s, as it was teeming with boiler rooms peddling obscure stocks over the phone to anyone who’d buy them.

Left eventually started betting against stocks being pumped by brokerage firms, and published his research in easily distilled blog posts. He started Citron Resarch -- initially called StockLemons.com -- around 2001.

The firm has published reports on dozens of companies, but its most prominent win was Valeant Pharmaceuticals Inc., which Left called the “pharmaceutical Enron.” The Justice Department, which subsequently indicted two executives, gave Left an implicit nod in a release, saying “investor websites” helped reveal suspect aspects of the business.

Citron, based in Los Angeles, also published reports on companies that haven’t panned out as well, like airplane parts manufacturer TransDigm Inc. and payments-card company FleetCor Technologies Inc.

“He has been a plus any way you slice it,” Cohodes said. “I like him and he’s very good at what he does. It’s just impossible to short stocks right now.”

Detached Prices

Left made the same point in his 2020 letter to investors. In the prior year, Citron steered clear of Tesla Inc. and other stocks whose prices had become “detached from any underlying financial metrics,” he wrote, as the market had become “increasingly dependent on psychology and less about business.”

On Jan 19., Citron tweeted that GameStop, whose shares were nearing $40 apiece after doubling in a few days’ time, would quickly half in price, triggering an avalanche of criticism from day traders set on proving the short sellers wrong.

Citron later had to suspend a scheduled live stream to explain the call, saying there were “too many people hacking” its Twitter account. “I’ve never seen such an exchange of ideas of people so angry about someone joining the other side of a trade,” Left said in a video he later posted.

On Wednesday, he said the research firm covered the majority of the GameStop short in “the $90’s at a loss of 100%.”

Shares of GameStop surged to $328.50 at 12:57 p.m. in New York. The stock rebounded after several brokers including Robinhood Markets Inc. and Charles Schwab Corp. imposed trading restrictions on the stock earlier this week.

This year’s surge has helped inflict damage at some of the world’s most prominent hedge funds, most notably Gabe Plotkin’s Melvin Capital, which required a cash infusion from billionaires Steve Cohen and Ken Griffin.

Left on Friday still offered a word of caution to traders piling into GameStop:

“If you choose to buy GameStop here, it’s caveat emptor.”

©2021 Bloomberg L.P.

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