What are the main crises an IR team might need to handle? Profit warnings, unexpected leadership changes and major operational issues come to mind.
Another challenge, which has become increasingly common, is to find your company in the sights of an activist short-seller. These firms have become notorious for their ability to quickly drive down stocks by claiming a company is in trouble or committing fraud.
While most would agree there is a place for short-selling research groups in the market, there is plenty of debate about the tactics they use. From exaggerated claims to the use of social media to whip up negative sentiment, companies often feel they are in an unfair battle to get their side of the story across.
All of which means IR teams will be interested to hear about the charges last week against prominent short-seller Andrew Left and his firm Citron Capital. Left has been charged with securities fraud by the US Department of Justice (DoJ) and is also facing a civil complaint from the SEC.
Authorities allege that Left and Citron made millions in profits by trading in the opposite way from their published research, taking advantage of investors who followed their advice.
‘Once the recommendations were issued and the stocks moved, Left and Citron Capital quickly reversed their positions to capitalize on the stock price movements,’ says the SEC. ‘As a consequence, Left bought back stock immediately after telling his readers to sell, and he sold stock immediately after telling his readers to buy.’ In total, Citron made $20 mn using the ‘bait-and-switch’ tactics, says the regulator.Â
In its complaint, the SEC alleges other ‘deceptive acts’ by Citron, such as publishing investor letters to give the impression the firm had outside backers – when in fact it had none – and setting up anonymous websites to support its claims and drive more trading activity. It also alleges that Left bragged to colleagues that getting retail investors to follow his recommendations was like ‘taking candy from a baby’.
The charges are ultimately about whether or not Citron defrauded investors but they offer insight into some of the tactics short-sellers may use to influence market sentiment.
For example, Left would tweet dramatic price targets ‘for the purpose of encouraging the media to pick up, and thereby amplify, his trading recommendations,’ says the SEC. He also leveraged media appearances with the likes of CNBC and Citron’s 100,000+ followers on X (formerly Twitter) to boost his message.Â
In a statement to Reuters last week, James Spertus, Left’s lawyer, said his client would fight the charges. ‘There is no crime here,’ said Spertus in an email to the news service. ‘Mr Left is a publisher who has taken extraordinary steps to comply with all laws, and neither the DoJ nor the SEC allege that he ever once published information he believed was not true when published.’
Have you ever been the subject of a short report? How did you respond? And what other crises would you be interested to hear about? Let us know at [email protected] or find us on LinkedIn.
