Short-Seller Andrew Left Previews Defense in Skirmish Over 3,000 Extra Words

(Bloomberg) -- Short seller Andrew Left is gearing up to seek dismissal of a US Securities and Exchange Commission lawsuit over his trading activities, with his lawyer characterizing the civil case as a substandard “novelty.” 

US authorities in July accused Left and his Citron Research firm of committing fraud through stock trades, social media posts and research reports — the culmination of a yearslong crackdown against traders who promote their bearish bets. The SEC case is running parallel to a US Justice Department criminal prosecution.

Last week, Left’s lawyer said the SEC case against the famed short seller is so unusual that he should be allowed to file a motion to dismiss that spans 10,000 words instead of the court-mandated limit of 7,000. The seemingly mundane request hinted at his defense strategy, including arguing that Left’s often-blistering social media posts about publicly traded companies were accurate and that there’s no hard rule about short sellers revealing their trading activity.

“This is the SEC’s first-ever enforcement action alleging fraud by omission based on the allegation that a publisher of truthful information about companies must also disclose private trading strategy with the truthful information,” Left’s lawyer, James Spertus, said in a Sept. 26 filing.

On Monday, US District Judge Sherilyn Peace Garnett denied the motion, saying Left hadn’t properly explained how he’ll be “irrevocably” harmed by a 7,000-word limit. The SEC had objected to Left’s characterization of the case in a filing last week, without elaborating. 

Last month, short sellers began beefing up disclaimers in their own research reports in the clearest signal yet that the government’s cases against Left are reverberating through the industry. Left denies wrongdoing in both cases. His federal criminal trial is set to begin in September 2025 in Los Angeles. 

In the request for a longer filing, Spertus also suggested that the SEC didn’t include enough detail in its claims about Left’s allegedly false statements. The purported shortcomings make the claims “inconsistent” with federal rules that require agencies “to plead fraud with particularity,” the lawyer said in the filing.

Left, 54, allegedly exploited his ability to move stocks in almost two dozen companies, including American Airlines Group Inc. and Tesla Inc. Prosecutors say he misled investors with inflammatory tweets and “extreme” target prices in hopes of nudging a stock up or down just long enough to make his own trades. 

In Monday’s decision, the judge advised Left to keep his written arguments within the prescribed limits. She pointed to a ruling in a different case on the limits of emergency motions like the one Left filed, known as ex parte motions:

“Lawyers must understand that filing an ex parte motion, whether of the pure or hybrid type, is the forensic equivalent of standing in a crowded theater and shouting ‘Fire!”’ 

“There had better be a fire,” Garnett said, citing the earlier case. 

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