Accused Short Seller Andrew Left Hits Back: SEC Lacks Rule for His Charges

Andrew Left, the renowned short seller, is challenging the U.S. Securities and Exchange Commission (SEC) to create a rule to govern the type of trading he has been accused of. Left, founder of Citron Research, faces fraud charges by the Justice Department and SEC, and he now demands that the SEC implement a rule that explicitly defines what type of trading is illegal — as no such rule currently exists.

A six-page official petition filed by Left’s legal team, Dynamis Law, requests the SEC to create regulations to clarify the legality of trades made by investors who publicly comment on securities. The SEC has charged Left and his firm with being part of a $20 million fraud scheme, claiming they published false and misleading statements regarding Left’s alleged stock trading recommendations.

The SEC complaint alleges that, after publishing his recommendations, Left and Citron Capital quickly adjusted their positions to profit from price movements. The complaint states, “Left would buy back stocks immediately after telling his followers to sell, and sell stocks immediately after advising them to buy.” However, neither the SEC nor the Department of Justice accused Left of spreading false claims about the companies he writes about. Instead, they argue that covering his short positions or closing them after publishing his analyses misled investors.

Now, the SEC is seeking to bar Left and any firm linked to him from trading any securities for five days after publishing any statements about them — whether through a report, tweet, social media post, interview, or other written or oral statements. The issue, however, is that the SEC does not have a rule that bans such trades, which are common among short sellers, nor does it have trade restrictions concerning short sales.

If the SEC wants to charge Left, short sellers argue that it must first create such a rule, rather than trying to “legalize through enforcement.” (The SEC, under Chairman Gary Gensler, has been criticized for using enforcement actions in place of rulemaking, especially regarding cryptocurrencies.)

The petition questions, “After making a public comment about a security, how long should a person wait before making a trade?” It also calls on the SEC to clarify whether disclaimers can provide protection for traders who disclose their intentions and whether trading restrictions should apply to all investors. Many activist short sellers cover their short positions after releasing reports, relying on extensive disclaimers that clearly state they may change their trading positions at any time. They also argue that the same rules should apply to Wall Street analysts making stock recommendations.

Left is one of several short sellers under investigation by the Justice Department and SEC for their trading practices, but he is the only one facing formal charges so far. “The lack of clear guidelines has created an environment in which millions of people engaging in routine stock discussions may now face SEC action,” claims Dynamis.

Left’s legal team has also sent a letter to new SEC Chairman Paul Atkins, informing him of the petition and referencing President Donald Trump’s commitment to “freedom of speech.” “This issue is directly in line with President Trump’s commitment to free expression, as stated in his recent inaugural speech,” they wrote. “The recent actions of the SEC are creating a dangerous chilling effect on free speech and market participation,” says Eric Rosen, founder of Dynamis and one of Left’s attorneys.