Hong Kong bans short-seller Andrew Left from market for five years

A Hong Kong tribunal banned US short-seller Andrew Left from trading on the city’s market for five years after publishing “false and/or misleading” claims about a company listed there.

Left must repay HK$1.6 million in trading profits, pay about HK$4 million in legal expenses, and will face criminal prosecution if he breaks Hong Kong rules again, the Market Misconduct Tribunal said Wednesday. The penalties follow the tribunal’s August ruling that Left’s Citron Research published a 2012 report that was “false and/or misleading as to material facts or through omission of material facts”.

Some Hong Kong-based investors and analysts are concerned about the implications for freedom of opinion in the wake of Left’s case, and argue that the ruling could strangle negative commentary about the city’s markets. In March, a separate tribunal fined Moody’s Investors Service HK$11 million and publicly reprimanded it for a report that was critical about dozens of Chinese companies.

“The bigger issue here is that it’s saying you can’t make short-sell calls or negative calls on the Hong Kong market,” said Brett McGonegal, chief executive officer of Capital Link International. He said that he couldn’t comment on the specifics of the Citron case. “Critical research has definitely got a negative blow by this decision.”

China Evergrande Group, which was renamed from Evergrande Real Estate Group in May, dropped 20 per cent on June 21, 2012, when Left published his note claiming that the company used accounting tricks to mask insolvency. Evergrande, based in the Chinese city of Guangzhou, denied the claims.

Analysis of Chinese companies’ accounts can sometimes be challenging because not all the information is available or transparent, said Benedict Cheng, chief operating officer at Fairman Consulting Ltd. Chinese companies also often have shareholding structures that further complicate efforts to examine corporate records, he said.