After years of such conjecture among embattled corporate chieftains, a little noticed lawsuit in Toronto is exposing a variety of alleged contacts and even alliances between skeptical researchers and investment firms.
The connections are tucked in places like page 107 of a legal motion so hefty it had to be filed in three “volumes.” There, in the transcript of a deposition, the head of Canada’s Anson hedge fund, Moez Kassam, said his firm has shared research “with a wide variety of sources.”
Questioned about whether that includes a half-dozen prominent names in the short-selling world, Kassam said he believes he has exchanged information with all of them, including Hindenburg’s Nate Anderson, Muddy Waters’ Carson Block and Citron’s Andrew Left.
The notion that short sellers may exchange research has long irked CEOs and sympathetic policymakers, worried that such firms could also place parallel bets, putting more downward pressure on stock prices they deem overvalued. While such behavior can be perfectly legal, short sellers tend to keep it secret, especially as companies have increasingly responded to research with litigation and as regulators poke around.
Anson and Kassam didn’t respond to messages seeking comment. In the deposition, Kassam said his firm also has shared research with Spruce Point’s Ben Axler and Viceroy’s Fraser Perring, as well as Nate Koppikar, who publishes under the name Friendly Bear. Kassam didn’t specify in the deposition at what point Anson speaks to other firms when it shorts stocks, though he did say they don’t coordinate trades. Other court documents show information sometimes was shared before publication.
Almost all of the firms denied teaming up with Anson.
“Muddy Waters confirms that it has never had any relationship with Anson,” the firm said in a statement. And Viceroy’s Perring said his firm has never had a financial relationship with Anson.
“We have discussed a few items on our published research and their work on our published work,” Perring said. “As is often the case post-publication, we discuss it with many people.”
Hindenburg said it receives “hundreds of leads each year from diverse sources,” such as industry experts, whistleblowers and other investors. “We rigorously vet each lead and have always maintained full editorial independence over our work,” it said.
“We don’t have a business relationship with Anson,” Koppikar said. They have spoken, but not frequently and it has been “a long time” since their last conversation, he said. But broadly, he said, “short sellers often talk about ideas.”
An attorney for Citron’s Left acknowledged that Left and Anson have been in contact, noting that Anson once helped Left place a wager against a stock in Canada. Axler, of Spruce Point, didn’t respond to messages seeking comment.
US Probes
The cache of documents has piled up this year at Ontario Superior Court of Justice in a complex defamation lawsuit between Anson, a researcher, the operator of an investment website and others. The filings follow a separate years-long investigation by the US Justice Department and the Securities and Exchange Commission into whether some bearish firms may have crossed legal lines into market manipulation.
So far, authorities behind that probe have taken issue with two firms, including Anson. In June, a pair of its affiliates – Anson Funds Management and Anson Advisors Inc. – agreed to pay $2.25 million to settle SEC claims that they failed to tell clients about payments to outside publishers of bearish research, including Citron’s Left. Anson didn’t admit or deny wrongdoing.
At the time, Anson said its work benefited investors and the public, and that there was no allegation the firm “engaged in inappropriate trading or in any way breached its fiduciary duty.”
The Justice Department and the SEC later brought separate cases against Left, alleging he sought to manipulate markets with inflammatory social media posts and extreme price targets that didn’t reflect how quickly he was unwinding his bets behind the scenes.
Left has pleaded not guilty to the criminal charges and asked a court to dismiss the SEC’s related civil lawsuit, arguing it effectively accused him of breaking a rule that doesn’t exist.
Bearish researchers and short sellers have increasingly faced public criticism or litigation in recent years, even when their allegations of corporate malfeasance proved true. To avoid the spotlight, some firms quietly work together behind the scenes, with one publicly taking credit for their research.
‘Exclude Any Pictures’
One example in the Toronto court documents involves a 2020 Hindenburg report on Facedrive, a Canadian company that went public through a reverse merger as an eco-friendly ride-sharing service. In a 26-page report, Hindenburg chided the company’s market value — then exceeding $1 billion — as too high. It accused Facedrive of lavishly paying promoters and overstating capabilities while struggling to propel ride-sharing during the pandemic.
The stock ultimately collapsed, trading for pennies as the company changed its name. The venture later settled a Canadian regulator’s complaint that it misled the public, saying it happened when it was “a much younger company that was trying to innovate during a global health crisis,” and that it took steps to ensure future compliance.
A section of the Hindenburg report focused on the company’s announced plans for a Covid contact-tracing product. Emails disclosed in the Toronto lawsuit indicate an Anson analyst persuaded a Facedrive partner to confirm in email messages that the company was unlikely to meet a development timeline it made public.
Exhibits show the Anson analyst turned over those emails to Hindenburg’s Anderson and that for roughly two weeks he worked with Anson on the report. Directions from Anson employees included how the report should be arranged, what the price target should be and requests to keep Anson’s name out of it.
“Lets exclude any pictures of emails to Anson,” Anson executive Sunny Puri wrote in a July 22, 2020, message. The final report didn’t mention Anson.
In the run-up to publication, Anson employees expressed their excitement. In an email to Anderson hours before Hindenburg published, an Anson analyst remarked on the latest draft: “Looking forward to tomorrow. To full downside.”
Trading records provided by Anson in the lawsuit show it had been shorting Facedrive almost daily before the report and began unwinding some bets the day Hindenburg published. Kassam testified in a deposition that neither he nor his firm paid Anderson or Hindenburg for the report. The public research report noted that Hindenburg was shorting the stock.
“In our Facedrive report, we conducted extensive in-house proprietary research,” and regulators later took action against the company based on those findings, Hindenburg said in its statement. “We received no third-party compensation for the project.”
Paying a Bear
Another alleged alliance involved Anson’s work with Left. More than a year before the government’s cases against Left, Kassam said in the deposition that his firm had worked with him, but that it never told him what to report. “We have never paid Andrew on any matter,” Kassam said, according to a transcript.
In its separate claims against Anson and Left earlier this year, the SEC said Anson sent Left more than $1 million in 2018 in exchange for publishing bearish content on two publicly traded companies: Namaste Technologies and India Globalization Capital.
While the SEC didn’t take issue with them exchanging information, it faulted Anson’s disclosures. The agency said the firms agreed to share profits and accused Left of creating sham invoices that helped Anson obscure the payments.
Those payments weren’t for research, according to Left’s attorney. Rather, Anson helped Left place a bet against Namaste in Canada and then sent him the proceeds. And if the wager had lost money, Left would have shouldered the loss.
“Anson sent Mr. Left’s gains to Mr. Left through their researcher so they could book it as a research expense, but that does not mean Mr. Left was in fact paid for research or had a profit-sharing agreement with Anson,” said the lawyer, James Spertus. Left “was never paid one penny by Anson for research or any other service.”
