Andrew Left knows conflicts when it comes to investments. He makes a living betting that companies will stumble and calls executives by name.
The companies and their supporters retaliate, but the criticisms he usually receives are nothing compared to the poison spread in recent days by stock brokers who have met online to raise shares in an unlikely momentum stock, GameStop shopping center retailer Corp.
GME 85.79%
“It makes you feel vulnerable,” Left, 50, founder of Citron Research, said in an interview. “We live in a world where we are all exposed and people don’t understand the limits.”
The furious merchants shared his personal information, hacked into Mr. Left’s social media accounts and sent text messages to Mr. Left and his two sons, using threatening, profane and personal language, according to people close to the matter.
Other short sellers were also targeted at these forums. Last week, there was an increase in references to well-known short sellers like Mr. Left and Muddy Waters LLC’s Carson Block on Reddit channels, blogs and other social media sites, according to an analysis by Meltwater,
a global media intelligence company.
Block, from Muddy Waters, who made his name by selling Chinese stocks, said he had received death threats and other evils in the past, although abuse has always seemed more moderate in the investment world than in politics.
“People have always been much more pragmatic with their money than with their political beliefs, which allows activists short sellers to be heard by investors,” said Block. “Perhaps what happened to Andrew is an evisceration of that pragmatism that is similar to the angry delusions you see in politics and elsewhere.”
Online forums like Reddit’s WallStreetBets are full of traders who boast of defeating the big investors who normally control the market. It is an ironic twist, or a sign of their lack of understanding, that they equate short sellers with the establishment of Wall Street.
Short sellers are marginal players who chase companies and institutions that the rest of the financial world is largely supporting. They often place bets based on in-depth research, sometimes exposing fraud. Recent successes include companies like Nikola Corp.
, Wirecard AG
and Valeant Pharmaceuticals International Inc.
Muddy Waters’ Carson Block believes that GameStop’s short pressure will end badly for traders, who are ignoring the ‘investment lessons of the past’.
Photograph:
brendan mcdermid / Reuters
But they are usually rich. And in some cases, individual investors have been burned by their short selling campaigns. Nikola, for example, was a favorite of retail traders.
This time, Mr. Left took aim at GameStop, which soon became the subject of a price squeeze, where rising prices lead pessimistic investors to repurchase shares they had short sold to cut their losses, pushing stocks further up. Traders have raised the price of GameStop three times since Thursday, when Mr. Left made a live presentation arguing that the shares would fall 50%.
The company’s fans ordered dozens of pizzas sent to their home, well after midnight. Mr. Left even spoke to an online critic after he asked Mr. Left why he made his Twitter account private. “We talked on the phone, he looked like he was 15,” said Left.
But Left also contacted the Federal Bureau of Investigation and the Securities Exchange Commission about the most cruel abuse and what he sees as collusion among investors. In a YouTube video posted on Wednesday, Left said it had already closed most of its short position.
Current and former regulators say authorities have the means to crack down on online groups that come together to pump stocks. There are several cases where the authorities have won lawsuits against groups of investors who have acted together online to manipulate a share price. In most cases, they target those who spread false information online.
It is unclear whether what is happening online can now be considered manipulation. Many of the posters are simply announcing their intention to raise the stock, and are not trying to mislead other investors by making false claims.
Current and past regulators say there are mechanisms in place for the SEC to quickly limit some of these activities. Just as when the SEC banned short selling to hundreds of companies at the height of the financial crisis, it can take emergency measures that would make it harder to trade options, which many traders are using to increase their returns and boost stocks.
The criticism against Block, Left and Gabe Plotkin, of the hedge fund Melvin Capital Management, started largely in the last 10 days, according to Meltwater. Mr. Plotkin had a short position on GameStop.
Mr. Left received most of the so-called “negative” feelings. Most of the online content came from the United States, although users in China also contributed largely to the effort.
Left said traders’ attacks on him are a sign of the risks they are taking when trading options and buying shares in markets close to their historic highs. The fact that so many investors are confined amid the coronavirus pandemic makes people even more nervous.
“It is extreme capitalism that has gone mad,” says Left. “We are a nation of players.”
Block believes this will end badly for traders, who are ignoring “investment lessons from the past”, such as not chasing expensive stocks. Over time, he believes that new investors will be burned. “Frantic retail speculation always leads to tears,” says Mr. Block.
Write to Gregory Zuckerman at [email protected] and Geoffrey Rogow at [email protected]
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