White Collar | Ruling on Citron research report is not a freedom issue, it is about investor protection
Misconduct decision on short seller is a landmark case in setting the standards for future research reports
Where does freedom of speech end, and investor protection kick in?
There’s been much debate on this issue since Friday, after Hong Kong’s Market Misconduct Tribunal found US short seller Andrew Left guilty of market misconduct, after he issued what it ruled was a “false and misleading” report in 2012, about Chinese developer China Evergrande Group.
The head of Citron Research pocketed a HK$1.7 million from short selling Evergrande shares, two months ahead of issuing his report on the mainland developer.
He may now be forced to repay the profit he made from the deal, as well as being slapped with a five-year ban on trading in Hong Kong stocks. The penalty will be determined by the tribunal at a later stage.
This is a landmark case. It the first time the Hong Kong tribunal, chaired by Justice Michael Hartmann, has made a ruling against a short seller report, and also marks the Securities and Futures Commission’s first such action against activist short-selling firms.
Several short selling analyst, including Citron Research, Glaucus, and Muddy Waters, have profited by selling borrowed shares and then buying them back at lower prices, pocketing the difference.