Andrew Left is no stranger to conflict when it comes to investing. He makes his living betting that businesses will stumble, and he calls executives by name.
Companies and their supporters are fighting back, but the criticism he normally gets is nothing compared to the poison spewed out in recent days by stock market traders who have gathered online to boost stocks of unlikely momentum, retail chain GameStop. Corp.
GME 100.14%
“It makes you feel vulnerable,” said Mr. Left, 50, founder of Citron Research, in an interview. “We live in a world where we are all exposed and people have no boundaries.”
The angry traders have shared his personal information, Mr. Left hacked and texted to Mr. Left and his two children are sent in threatening, blasphemous and personal language, according to people close to the cause.
Other short sellers are also targeted by these forums. In the past week, there has been an increase in referrals to well-known short sellers such as Mr. Links’s Carson Block and Muddy Waters LLC on Reddit channels, blogs and other social media locations, according to a review by Meltwater,
a global media intelligence company.
Muddy Waters’ Mr. Block, who made a name for himself by shorting Chinese stocks, said he has received death threats and other misery in the past, although the abuse has always seemed tame in the investment world than in politics.
“People have always been much more pragmatic about their money than their political beliefs, allowing activist short sellers to get a hearing with investors,” Block said. “What happened to Andrew might be a swipe at that pragmatism that resembles the rabid delusions you see in politics and elsewhere.”
Online forums like Reddit’s WallStreetBets are full of traders boasting that they beat the big investors who normally rule the market. It is an ironic turn, or a sign of their lack of understanding, that they equate short sellers with the Wall Street establishment.
Short sellers are fringe players who go after companies and institutions that the rest of the financial world is largely behind. They often make bets based on in-depth research, sometimes revealing fraud. Recent successes include companies like Nikola Corp.
, Wirecard AG
and Valeant Pharmaceuticals International Inc.
Muddy Waters’ Carson Block believes GameStop’s short squeeze will end badly for traders, who ignore the “ investment lessons from the past. ”
Photo:
brendan mcdermid / Reuters
But they are often rich. And in some cases, individual investors have been burned by their short selling campaigns. Nikola, for example, was a favorite stock of momentum retail traders.
This time, Mr. Left on GameStop, which quickly became the subject of a short squeeze, with rising prices prompting bearish investors to buy back shares they had sold short to limit their losses, pushing the stock even higher. Traders have tripled GameStop’s price since Thursday when Mr. Left held a live stream presentation arguing that the stock would drop by 50%.
The company’s fans have ordered dozens of pizzas that were sent to his house well after midnight. Mr. Left even reached out to an online critic after calling Mr. Left had asked why he made his Twitter account private. “We spoke on the phone, he sounded like 15 years old,” said Mr. Left.
But Mr. Left has also contacted the Federal Bureau of Investigation and the Securities Exchange Commission about the more vicious abuse and what he sees as collusion between the investors. In a YouTube video posted Wednesday, Mr. Left that he has now closed most of his short position.
Current and former regulators say authorities have the means to crack down on online groups working together to pump up supplies. There are several instances where authorities have successfully won cases against groups of investors who have collaborated online to manipulate the price of a stock. In most cases, they have targeted those who are spreading false information online.
It is unclear whether what is happening online now can be considered manipulation. Many of the posters simply announce their intention to inflate a stock, and do not try to mislead other investors by making false claims.
Current and former regulators say there are mechanisms for the SEC to quickly curtail some of this activity. Just like when the SEC banned short selling in hundreds of companies at the height of the financial crisis, it could implement emergency measures that make it more difficult to trade options, which many traders use to drive their returns and drive stocks up.
According to Meltwater, the vitriol against Mr. Block, Mr. Left and hedge fund Melvin Capital Management’s Gabe Plotkin largely over the past 10 days. Mr. Plotkin was short on GameStop.
Mr. Left has received most of the so-called “negative” sentiment. Most of the online content is from the US, although users from China have also put in much of the effort.
Mr. Left said the traders’ attacks on him are a sign of the risks they are taking by trading options and buying stocks with the markets nearing all-time highs. The fact that so many investors are trapped in the midst of the coronavirus pandemic is putting even more people on edge.
“It’s extreme capitalism that has gone wild,” said Mr. Left. “We are a nation of gamblers.”
Mr. Block believes this will end badly for the traders, who ignore the “investment lessons of the past”, such as not hunting for expensive stocks. He believes the new investors will be burned over time. “Frenzied retail speculation always leads to tears,” said Mr. Block.
Write to Gregory Zuckerman at [email protected] and Geoffrey Rogow at [email protected]
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