A U.S. judge denied a bid by short seller Andrew Left to toss out a Securities and Exchange Commission lawsuit accusing him of committing fraud through stock trades, social media posts and research reports.
The decision Wednesday in Los Angeles federal court comes as Left awaits a ruling on a separate request to dismiss related criminal charges by the U.S. Justice Department over the same alleged conduct.
Left and his firm, Citron Research, are accused in both cases of misleading investors with inflammatory social media posts setting “extreme” target prices for some companies in hopes of nudging stock prices long enough for him to make profitable trades.
In Wednesday’s ruling, U.S. District Judge Sherilyn Peace Garnett said it was too soon to consider whether the disclaimers that Left uses on his website were sufficient to rebut the claims, undercutting one of his key defenses.
She said that “the mere existence of a disclaimer, alone, does not automatically absolve one of his duty to disclose certain information to make his statements not misleading.”
The cases against Left raised alarm in the lightly regulated short-selling industry. After the criminal charges were filed last year, at least two major short sellers beefed up language in their disclaimers.
Garnett also said that the allegations must be accepted as true at the motion-to-dismiss stage, and her ruling focused on whether the SEC had properly supported its claims.
“Assuming the truth of plaintiff’s allegations, the defendants did not simply present opinions about the trajectory of stock prices,” Garnett said. “Instead, as alleged, defendants presented half-truths by intentionally informing readers of their own short or long exposure in certain stocks with the primary goal of influencing readers to make similar trades.”
Left’s lawyer, James Spertus, didn’t immediately respond to a message seeking comment. A hearing on the motion to dismiss in the criminal case is scheduled for early May.
Spertus has downplayed Left’s impact on the market in court filings, saying that it was “absurd” for the SEC to claim that Left’s tweets and reports had an impact on the markets for multibillion dollar companies like American Airlines Group Inc. and Tesla Inc.
The judge said the SEC’s civil complaint properly spells out its claims alleging that when Left and Citron issued the statements, they “always intended to trade contrary to those published target prices and, most importantly, never shared this inconsistent intent with their readers.”
The case is SEC v. Left, 24 cv 06311, U.S. District Court, Central District of California (Los Angeles).
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