By Nichola Groom
LOS ANGELES, May 12 (Reuters) - U.S. prosecutors cast prominent short seller Andrew Left as an opportunist who profited by scaring retail investors, while his defense said Left genuinely believed in his stock calls as his criminal trial got under way in Los Angeles on Tuesday.
U.S. authorities have accused Left of manipulating the stock market and defrauding investors with misleading claims about his positions in multiple companies' shares, including Nvidia and Tesla, making $20 million
in the process.
"He said whatever he had to, whether it was accurate or not, to get a market reaction. Because that's what he was looking for. To generate a market reaction. To generate panic," assistant U.S. Attorney Andrew Roach said during opening arguments.
Known for his sensational and colorful style, Left has, for more than a decade, been among the most prominent of a cohort of "short activists" who say they bet against public companies on the basis they are overvalued or engaging in outright fraud, drawing the ire of companies who have fought to curb their bets.
Left, who runs Citron Research, appeared in court on Tuesday sporting a dark gray suit, red tie and black-rimmed glasses. Short sellers seek to profit off bets a stock will fall, although Left also took long positions.
"He trades based on his own ideas about what's good and bad," Left's attorney Adam Fee responded. "He told people in 2018 to buy Nvidia. He said buy it because the future is AI ... If you had listened to Andrew Left, you would have made a fortune."
Prosecutors allege Left exploited his influence through social media and cable news appearances to tout what he said were his trades, only to quickly and secretly close out his positions to profit from short-lived price movements.
For Left's scheme to work, retail investors had to believe that he "was putting his money where his mouth was," Roach told the jury. Prosecutors plan to call a number of witnesses, including retail investors, court filings show.
Fee said that the defense planned to call a securities lawyer Left hired to ensure he was complying with the law. It is unclear if Left himself will take the stand.
He could face 25 years in prison if convicted of securities fraud.
AGGRESSIVE LEGAL THEORY?
Some legal experts have argued the Justice Department's case is aggressive. Long criticized, short sellers have often defended themselves by leaning on First Amendment rights. Investors are also free to change their minds.
"Can you publish a report or a tweet or stand in the middle of the street and say something about any of those stocks? Absolutely. Free country … Can you trade at any time in any direction? Yes. That's the law," Fee told the jury.
Prosecutors, though, are expected to lean on Left's private messages as well as evidence of his other behind-the-scenes dealings, to show that his true intention was to manipulate.
They have also alleged that, in return for compensation, he alerted hedge funds before publicizing his positions, and concealed the coordination using fake invoices.
Among Left's most high-profile short targets were the now-defunct China Evergrande, as well as GameStop and Valeant Pharmaceuticals. Proponents of short activists say they play a crucial role in the market in exposing wrongdoing, but critics have accused them of “short and distort” tactics that have unfairly damaged public companies.
Left's trial is the culmination of a years-long probe by criminal prosecutors in Washington and Los Angeles, who began probing short sellers in 2019, Bloomberg, Reuters and others have reported.
(Writing by Michelle Price, Editing by Nick Zieminski)
