What the case against Andrew Left says about following finfluencers

The recent federal lawsuits against famous short seller Andrew Left draw attention to the roles that financial influencers have in guiding investors’ decision making – and the wide range in the quality of the information available online.

In Left’s case, the Citron Research publisher allegedly misrepresented his firm and the positions he took in companies to manipulate stock prices to his advantage. Left’s attorney, in comments to the press, has denied the allegations, claiming that the charges against his client will have a chilling effect on short sellers broadly.

The Securities and Exchange Commission alleges that Left and his firm Citron Capital defrauded people who followed his stock-trading commentary to the tune of $20 million. In at least 26 instances, the defendants made long or short recommendations for 23 companies, whose stock prices fluctuated by an average of 12 percent after commentaries were published, according to the SEC.

“Left and Citron Capital quickly reversed their positions to capitalize on the stock price movements,” the regulator said in an announcement of the charges. “As a consequence, Left bought back stock immediately after telling his readers to sell, and he sold stock immediately after telling his readers to buy.”

In addition to the SEC’s lawsuit filed in US District Court for the Central District of California, the Department of Justice and US Attorney’s Office for the Central District of California filed a separate case against Left.

Left, 54, has faced sanctions in the past, including one by the National Futures Association in 1998 for allegedly making false and misleading statements to customers, according to the SEC’s complaint. He was also barred for five years by the Hong Kong Futures and Securities Commission.

Publicly, he has been vocal about market manipulation, in Twitter posts from Citron’s account taking aim at Keith Gill, aka Roaring Kitty, over the value of GameStop stock and speculating that a big, unknown investor has backed Gill’s positions in GME and Chewy. Citron posts also alleged that the prosecution of former President Donald Trump in the Stormy Daniels hush-money case was political.

And in 2018, Left filed a lawsuit against Elon Musk and Tesla alleging that Musk’s public comments at the time about taking the company private manipulated the stock price. That case was combined with numerous others brought by shareholders and is currently in appellate court, following a loss for the plaintiffs at the district court level.

Regardless, there continues to be no shortage of financial information or guidance online. According to a report earlier this year from MoneySuperMarket, about three quarters of it is misleading or dangerous. Most videos on social media from “finfluencers” promoted specific products or services, and over three quarters also alluded to unrealistic investment returns.

About half of Gen Z and millennial investors say they get at least some investing information from social media, and the same is the case for roughly a third of Gen Xers, data from consumer research firm Hearts & Wallets show. And over a third of Gen Zers say that information from finfluencers factors significantly into their investment decisions, Finra and the CFA Institute found.

“Investors should always be wary of media personalities promoting specific investments, particularly if they are doing so with hyped rhetoric. Proper investing should be slow and steady. As a general rule, investors should consult multiple sources when considering what to invest in rather than relying on one media personality,” said Micah Hauptman, director of investor protection at the Consumer Federation of America, said in an email. “Anything that sounds exciting and suggests investors can get rich quick should cause them to question a promoter’s expertise and personal interests in the investment. Investors can lose significant sums of money very quickly if they fall victim to predatory behavior by others in the market.”