(Bloomberg) -- One of Andrew Left’s close associates settled US Securities and Exchange Commission claims about his role in preparing tweets that misled investors, potentially raising legal pressure on the famed short seller.
Ryan Choi’s settlement, disclosed Tuesday in court documents, is the latest twist in US authorities’ ongoing civil and criminal cases against Left and his Citron Research. The short seller is widely known on Wall Street for his damning reports about companies he claimed — often correctly — were overpriced by the markets.
Choi, 35, agreed to return $1.6 million he illegally made by trading around Left’s tweets about two target companies that he helped research, according to the filing in federal court in Los Angeles. Choi also agreed to pay a civil penalty of $115,231, the SEC said.
While Choi lacked Left’s fame, he helped Left found Citron Capital in 2018 and was well aware that Left’s tweets and reports could move stock within minutes of being published, the SEC said in a suit filed earlier Tuesday. The regulator and the US Justice Department accused Left in July of making millions of dollars off similar trading activity, shaking up the short selling industry.
At the center of the ongoing cases against Left is the government’s claim that he repeatedly misled investors by failing to make public his own trading intentions around his tweets and reports about dozens of companies.
Left has pleaded not guilty in the criminal case and has moved to dismiss the SEC suit. He argues authorities are attempting to enforce a rule that doesn’t exist, and that short sellers should not be required to reveal their own trading plans.
“The allegations against Mr. Choi do not pass the smell test,” Left’s lawyer, James Spertus, said in a statement, adding that he believes the SEC’s theory of market manipulation “is defective on its face.”
A lawyer for Choi didn’t immediately return a call and email seeking comment. As part of the agreement, Choi is not formally admitting or denying the allegations in the complaint. But the deal does prohibit him from publicly denying the allegations or suggesting the claims are not factual.
Spertus said it was a “hallmark of a coerced settlement” that Choi would be allowed to resolve the claims without admitting them.
“Although the SEC may have been successful coercing a settlement from Mr. Choi, this case does not further the interests of justice, and it does not serve the investing public,” he said.
The SEC didn’t also didn’t return an email seeking comment.
The SEC said in the lawsuit that Choi, who lives in Beverly Hills, California, profited off trades in technology firms Vuzix Corp. and XL Fleet Corp., which he researched for Left. Choi “failed to act reasonably by not conducting adequate research or due diligence on the companies,” the SEC said.
Spertus says the SEC and Justice Department are distorting Left’s record of accurately predicting problems with companies.
‘Half-Truths’
“The SEC has built a false narrative on half-truths, skipping over key facts they know about, such as the fact that 80% of Mr. Left’s target price opinions proved correct, and that all of his publications contain disclosures that he is actively trading the securities he published about,” Spertus said.
While Left had ultimate authority over Citron’s operations, including directing trading and investment decisions, Choi handled daily business tasks, including the formation of the firm and its policies and procedures, the SEC said on Tuesday.
The SEC says that on Dec. 18, 2020, Choi purchased VUZI call options that would allow him to profit if the stock went up. Less than an hour later, Left posted a tweet saying “NO WAY” he would short the company, which he called a “flyer,” even though Left allegedly knew Choi had not conducted adequate due diligence or research, the SEC said in the complaint.
“Choi began to sell his VUZI call options the same minute as the tweet’s publication, profiting from the price increase,” the SEC said. “Choi had completely exited his VUZI position within seven minutes of the tweet.”
The Choi case is SEC v. Choi, US District Court for the Central District of California, Case No. 24-cv-09082.
--With assistance from Tom Schoenberg.
(Updates with additional Left lawyer comment)
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