Money Stuff: Sometimes Andrew Left Was Right

Andrew Left is an activist short seller with a following on social media, where he goes by Citron Research. In 2024, he was arrested and charged with criminal market manipulation; his trial started last week. The theory of the US Department of Justice and the Securities and Exchange Commission is essentially that Left was doing a pump-and-dump scheme in reverse:

1. He would pick some random stock and sell it short.
2. He’d go on Twitter and say “this stock is a fraud, and I am shorting it until it hits zero.”
3. His legions of devoted followers would sell the stock, pushing its price down.
4. Then Left would buy back his short at a profit.

Or sometimes the other way, with stocks he was long. 

The view of the DOJ and the SEC appears to be that Left was lying about his own intentions, his social-media followers believed those lies, and those lies were material to them. “We want to sell any stocks that Andrew Left is short,” his followers perhaps thought; had they known that Left was just doing short-term trades against them, they would not have trusted him.

Left’s defense is basically:

• Saying “I’m short this stock” was not a commitment to keep the position on forever, and he had the right to do risk management and to take profits when the stocks moved; and
• His statements about the stocks were made in good faith and often true. When he said “this company is a fraud,” he meant it. There are several cases in the government’s complaints where Left said that some company was a fraud and he was short, and the company was a fraud — like, the SEC brought a fraud case against it — and its stock price collapsed. The government’s theory is that people who followed Left’s Twitter and shorted those stocks were deceived, because they thought that Left was short for the long term and in fact he covered quickly. But the people who followed Left’s Twitter and shorted those stocks did well, because those stocks were frauds.

Anyway the trial started last week, and the government called as witnesses some retail traders who followed Left and lost money. You might think: “Ah, yes, retail traders who followed Left’s advice, shorted stocks that he said he was short, and then lost money because he was lying and just pushing around those stocks to make a quick buck.” But no! The government called witnesses who proved Left’s point. Business Insider reports:

Billy Banks, a retired firefighter from Texas, testified at Left's trial in a Los Angeles federal court on Thursday. ...

He testified he took about $110,000 that was previously invested in mutual funds in his 401(k) to buy shares in a cannabis company called CV Sciences, with the stock ticker CVSI. Banks said he bought CVSI because he believed the company had great CBD products that "really helped" with stress and pain management. …

Banks said that shortly after he returned from vacation, Left shared negative comments about the company, and the stock price plummeted. While he still believed in the product, he said he couldn't justify the "beatdown" he was taking as the stock price tanked.

"It was like trying to catch a tiger tail. You couldn't catch up with the thing," he said.

Banks sold his CVSI shares, losing around $80,000 of his initial investment. He took about $30,000 of the remaining funds and invested in another cannabis stock, hoping to recoup some of his losses. This time, he invested in a company called Namaste Technologies. The company has since been renamed to Lifeist Wellness Inc. and uses the stock ticker NXTTF.

Banks testified he saw Left in a TV appearance in which the short-seller said he believed Namaste's share price would go to zero, and that his reaction was "simply horror." …

Banks testified that by the time he sold, he had lost around 80% of his investment in Namaste, calling it "devastating."

What? The guy bought into two cannabis penny-stock promotions, Andrew Left went on TV to be like “these cannabis companies are jokes,” he was correct, their stocks cratered, and Left committed a crime? Left tweeted about Namaste in September 2018: “Namaste $N Canada. Some cannabis stocks are overvalued, and some are total jokes. This is a joke. Drop it like its hot.” Its stock traded as high as $2.89 per share that month, but Left announced a price target of $0.25. It hit $0.584 by the end of the year, fired its chief executive officer after an investigation into Left’s allegations, and was below Left’s price target by the end of 2019. [1] It never recovered: It closed last Friday at about $0.03, but it did a 1-for-20 reverse stock split in 2024. Over the past eight years, Namaste’s stock steadily lost 99.95% of its value, as Andrew Left correctly predicted in 2018. Business Insider notes:

The defense said Left never recommended anyone buy CVSI or Namaste. They also argued that Left's view on Namaste turned out to be right, and that if Banks had sold all his shares the day Left issued the negative report, he would've lost less money than he did by selling them later.

I do not understand why this guy was a witness against Left? “Andrew Left heroically spotted a fraud and told everyone about it, but I ignored him and lost money, so put him in prison”? What on earth? Shouldn’t he be mad at the people who told him to buy these stocks?

Here is an SEC fraud case against CVSI, which also closed last Friday at about $0.03 and is down about 99.6% from its 2018 peak. What are we doing here?

There is a generic bad reason to hate short sellers, which is “I want all of my cannabis stocks to go up, this short seller is going around calling them frauds, that’s mean, it makes my stocks go down, and he shouldn’t do that.” This is a stupid complaint to have about short sellers: If you are investing all of your money in hopeless or fraudulent cannabis companies, you should stop doing that, and a short seller who goes on TV to say “stop doing that” is doing you a favor. Perhaps he’s not doing you a favor, if you don’t listen, but he is doing the market a favor. It is good for the world if people do not allocate capital to bad companies, and someone who says “this company is bad, do not allocate capital to it” is providing a useful service.

When Left was arrested, I wrote that “part of me wants to take Andrew Left’s side here,” because “short sellers generally get an undeserved bad rap.” But I conceded that “he doesn’t look great”: He allegedly did sometimes close his entire position and then tweet that he was still short (or long), and he had some pretty cynical-looking communications with his buddies about his ability to move stock prices. (He told an associate “now that I know who owns [a stock], candy from a baby.”) It looked possible, to me, that the government was going after him for some better reason than “short sellers are mean.” But the trial suggests otherwise.

One theme around here is that “everything is securities fraud”: If something bad happens at a US public company, shareholders will sue the company, claiming that the company’s disclosures misled them about the bad thing.

Another theme around here is that it is a desirable feature of private markets that private assets are not marked to market very often. If you pay $100 today for shares in a startup, or for some private credit loans, it is very unlikely that your stuff will be worth $99 tomorrow. Probably it will just bop along at $100 for a while; the startup might be marked up to $200 when it does another funding round, and the private loans will pay you interest each quarter, but they are not going to fluctuate every day with market sentiment. They don’t trade, so their trading price doesn’t go up and down. You don’t have to pay attention; you don’t have to worry about their value the way you would with public stocks or bonds. Of course you don’t have to worry about public stocks or bonds either — you can just not check your brokerage account every day — but apparently nobody can resist, and there is a real psychological advantage to owning investments whose prices don’t move.

And then a third theme around here is that everyone is desperate to package private assets into retail vehicles. “Retail vehicles” does not mean quite the same thing as “public companies,” but they are related concepts, and in fact a main way that private credit has been sold to retail investors is through publicly traded business development companies. Those BDCs are public companies containing private-credit loans.

The shares of public BDCs do fluctuate every day (they trade on the stock market), which undermines the relaxation benefit of owning private credit. But the net asset values of public BDCs — their reported valuations of their underlying loans — don’t fluctuate every day (though Apollo is working on it): BDCs tend to report NAVs once per quarter, and their assets are private credit loans, which don’t trade, so their values don’t move much. Historically — in the relatively brief history of private credit — the NAVs did not go down very often, and BDCs paid out interest to their investors without a lot of credit losses. Now people are more worried about private credit, and NAVs occasionally get marked down. Is that a lagging process? Are some BDCs’ NAVs kind of aspirational now? Are BDCs still somewhat hesitant to mark down loans each quarter to reflect current market conditions? I didn’t say that, but some people think that.

You can put those three themes together and conclude: “Oh man, there are going to be a lot of securities fraud lawsuits against BDCs for not marking down their loans fast enough.” Here is a Quinn Emanuel client memo from last month saying that: “Lawsuits filed in 2026 against several BDCs allege that fund managers misstated net asset values, delayed recognition of losses, and employed inadequate valuation processes. These claims strike at the structural opacity of private credit vehicles.” Those are classic everything-is-securities-fraud class-action lawsuits, but Quinn warns that “enforcement and regulatory actions will likely follow.” 

And on Friday, Bloomberg’s Olivia Fishlow and Ava Benny-Morrison reported:

Federal prosecutors are scrutinizing valuation practices at a BlackRock Inc. private credit fund, according to people with knowledge of the matter.

The Manhattan US Attorney’s office in recent months has been seeking information about BlackRock TCP Capital Corp., a publicly traded business development company, said the people, who asked not to be identified discussing a private matter. Executives have been questioned as part of the probe, one of the people said. …

TCPC filed a rare off-cycle disclosure in January that said it expected to slash the value of its assets by 19%. That sent shares of the fund plunging 13% on Jan. 26, the most since March 2020. A number of class-action lawsuits have since been filed on behalf of investors that claim it made “materially false” statements and that it didn’t properly value its loans.

Right, yes, every bad thing that happens at a public company is securities fraud. A listed BDC is a public company. Slashing the value of its assets by 19% is bad.

Earlier this month, the US Securities and Exchange Commission proposed to allow companies to report their financial information every six months, instead of the current system of reporting every three months. My guess — and the SEC’s guess — is that this would not change very much for most companies. Investors mostly expect quarterly reporting, the SEC’s proposal would still allow quarterly reporting, and it is hard for me to imagine many big companies shifting to semiannual reporting for all of the obvious reasons. Investors want to know what is happening at the big mature public companies where they invest, and the companies should tell them, and three months is a reasonable time to wait.

The six-month proposal is not about, like, Apple Inc. reporting semiannually. It’s about small public companies, and particularly new public companies, reporting semiannually. The SEC’s position is roughly:

1. Right now public companies publish comprehensive financial updates every three months.
2. Private companies never publish anything.
3. Going from private to public is costly: You have to stand up a financial reporting apparatus to report every three months.
4. Making it every six months would make it less costly.
5. Therefore some marginal companies would go public and report every six months, instead of staying private and reporting never.

“The proposal,” says the SEC, “is one step in a broader Commission effort to encourage more companies to go and remain public by reducing the costs and burdens associated with Exchange Act reporting.” And: “We estimate that approximately 20% of reporting companies would change their reporting frequency from quarterly reporting to semiannual reporting if the proposed rules are adopted.” It’s the marginal public companies, not the big ones. [2]

“Should we be encouraging marginal companies to raise money from retail investors and disclose financial information infrequently,” would be a reasonable question, but never mind.

I suspect that nobody really thinks that big public companies should report every six months. Five months after the last earnings report, (1) the general public has only pretty stale information about the company’s performance but (2) sophisticated hedge funds with access to alternative data probably have a pretty good idea about the company’s performance. [3] Arguably that’s fine — arguably the job of the hedge funds is to make stock prices efficient in the medium term, and if you just buy index funds you will get the benefit of efficient stock pricing without having to worry about quarterly reports — but US securities regulation is mostly set up to encourage a level playing field for retail investors, and depriving retail investors of information doesn’t have much appeal. I think that this SEC proposal is intended to get retail investors more information, on the theory that two reports a year is better than none, and optional semiannual reporting will get more companies to go public.

But I could be wrong, and perhaps in five years every company will report semiannually and nobody will know anything.

Anyway a bunch of readers sent me this very good SEC comment letter, “From: /r/wallstreetbets,” opposing the proposal:

To the Securities and Exchange Commission: We are r/wallstreetbets, a community of approximately 18 million retail investors on Reddit. We are writing to comment on File No. S7-2026-15, the proposal to move public companies from quarterly to semiannual reporting. We are against it. … 

A word on who we are, we are self-directed retail investors. Some of us are very good at this and some of us are, in the technical securities law sense, terrible at it. Many of us learned what a 10-Q was the hard way, which is to say we bought a stock, watched it fall 40% on an earnings release, and then read the filing to find out why. That is a stupid order of operations and we acknowledge it. But it is also the entire mechanism by which a generation of retail investors taught itself to read financial statements, and the Commission is now proposing to cut that mechanism in half. …

Quarterly reports are the single most important leveling mechanism between retail and institutional investors in U.S. equity markets. Institutional investors have expert networks, channel checks, alternative data, satellite imagery of retailer parking lots, credit card panel data, and direct management access through conferences and one-on-one meetings that cost more than most of our portfolios. We have the 10-Q. We have the 10-Q, and we have a Discord server, and we have each other. Take away the 10-Q and you have not eliminated the information. You have just made sure that the only people who have it are the ones who were going to outperform us anyway. ...

We are people who own stock. We would like to keep being able to find out what is happening at the companies whose stock we own, more than twice a year. The Commission has spent 90 years making it easier for people like us to participate in public markets on something approaching fair terms. We are asking the Commission not to spend this rulemaking making it harder. Thank you for considering this comment.

Again, I think this overstates the concern, but they’re not wrong!

I write sometimes that the big question about artificial intelligence facing many professional firms is whether AI will make them more efficient or worthless. If you are an accounting firm or consultancy or a homeowners’ association management company, perhaps you can adopt AI and run your business better with fewer employees. But perhaps your customers can adopt AI to do their accounting or consulting or homeowners’ association management themselves, cutting you entirely out of the loop. If your business is just a wrapper for your Claude subscription, why are people paying you, instead of just using their own Claude subscription?

One possibility is that a lot of industries are in a transitional phase: Now, AI is making the firms more efficient, and the clients are still hesitant to roll their own accounting/whatever, but in like five years the clients will overcome their nervousness and the firms won’t be able to get any work.

Possibly that is happening to bug bounty hunters. The Financial Times reports:

Companies that pay hackers to find flaws in their software are being inundated with low-quality reports generated by AI, forcing some to suspend the programmes altogether. …

Cyber security experts say advances in generative AI are reshaping the economics of bug bounty programmes. While the tools allow experienced researchers to find flaws more quickly, they are also lowering the barrier to entry, triggering a flood of automated or erroneous submissions that companies must sift through. …

HackerOne chief executive Kara Sprague said it had in recent weeks seen a rise in “higher quality” reports that had used AI. She added that the rise in AI-generated submissions was “not a strong reason to say we don’t want them” altogether, given that hackers were using the technology to spot more flaws.

Bugcrowd chief Dave Gerry said developments such as Anthropic’s Mythos would assist human bug bounty hunters, not replace them. “AI is going to help with a lot of things but we’re never going to replace that human creativity,” he said.

Yeah everybody says that about their own industry. “A computer program can never match human ingenuity for spotting flaws in computer programs,” maybe! 

Elsewhere here’s a guy who used Claude to recover his Bitcoin wallet password that he lost 11 years ago while stoned. The circumstances here do not seem especially repeatable, but it would be funny if AI tools were massively inflationary because they recovered all the Bitcoin passwords lost a decade ago under the influence of marijuana. By some estimates that’s 20% of all Bitcoin.

Last week I quoted a Financial Times story quoting the head of the Institutional Limited Partners Association complaining that private equity funds charge their legal fees to their investors, and saying “I challenge you to find an industry or an analogue where the ... client or the customer is paying the cost of legal counsel negotiating against them.” I wrote “I want to take up that challenge,” and suggested public-company mergers and acquisitions as another case where the customers (buyers in mergers) pay the cost of the lawyers negotiating against them. Many, many readers also wanted to take up the challenge. The main example is that, in many forms of lending, the borrower pays the lender’s legal fees. But really it does not seem like a particularly difficult challenge.

One service this newsletter provides is that sometimes people send me computer games that simulate working in the financial industry, and then I pass them on to my readers. In January I mentioned the Pod Shop Game, which allows you to pretend to run a multistrategy hedge fund, if that sounds fun to you. I should say that I have not played it and have no real interest in playing financial industry simulation games. I get my fill of pretending to work in finance by writing this column.

This weekend another reader emailed me, saying that at her tech-adjacent finance job “there has been a huge internal push for everyone to master AI tooling these days, so I vibed up an IBD simulator game on Claude Code in this spirit.” The game is Sweatshaw & Co., a simulation in which you can pretend to be an investment banking analyst. Again I have not played it, but I pass it along to you in case you want to pretend to be an investment banking analyst, which is probably more fun than actually being an investment banking analyst. 

Also there is something pleasingly dystopian about this? In the future, AI will take all of the professional jobs, leaving people at loose ends and searching for meaning. What will they do with their time? “They will use AI to vibecode immersive simulations of their old jobs, and play those all day” is the answer you’d come up with if you had just watched The Matrix, and also apparently true.

Ukraine’s Wartime Economy Has One Hedge Fund Holding the Keys. UBS: the bank that outgrew a country. Commerzbank rejects €39bn UniCredit takeover offer. NextEra to Buy Dominion for $67 Billion to Form Power Giant. Rival Airlines Are Carving Up Spirit’s Routes and Airport Slots. Suspicious Betting in Washington Is on the Rise—and Authorities Are Playing Catch-Up. The Mysterious Crypto Judges Who Settle Polymarket Disputes. Google’s Own AI Researchers Jockey for Access to Its Computing. HSBC Drags Feet on $4 Billion Private Credit Investment Effort. The Texas-Size Fight Over Rick Perry’s Nuclear Power Startup. Lululemon Criticizes Founder Wilson, Sets Proxy Vote. Donald Trump Jr’s VC firm flaunts political edge in investment push. Shakira wins €55mn tax battle against Spain. Will.i.am is teaching an AI class. Shrimp police. Pope to Launch Encyclical on AI Alongside Anthropic Co-Founder.

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