Research Profile: The Grandaddy of Short-Funded Research


Before Muddy Waters, there was, a website which bashed penny stocks for fun and profit.  The website, now branded as Citron Research, has moved into Muddy Water’s turf, bashing China stocks.  Citron created a stir last week when it released a report accusing Hong Kong-listed Chinese property developer Evergrande Real Estate Group of fraud.

The report alleges that Evergrande has engaged in fraudulent accounting, including hidden off-balance sheet debt, understated land costs, and overstated cash positions, property values and other assets.

The report doesn’t stop there, however.  It also accuses Evergrande of obtaining land cheaply by systematically bribing local officials, claiming that the central government may reverse these purchases when the bribery schemes are investigated.  It points to signs of increasing financial distress at the company, including swelling debt and falling cash deposits.  It accuses the company chairman of utilizing undisclosed asset swaps to manipulate share prices.

Evergrande, one of China’s largest property developers with a market capitalization of about $9 billion, says the allegations are untrue.

The individual behind Citron Research is Andrew Left, who has been publishing short-oriented research since 2001.  The Citron website clearly states that Left and his colleagues have short positions in the stocks they bash:   “The principals of Citron Research most always hold a position in any of the securities profiled on the site.  Citron Research will not report when a position is initiated or covered.”

Andrew Left has many detractors.  He has been sued four times, and by his account has prevailed in each.   He acknowledges being sanctioned by the regulatory arm of the National Futures Association and being arrested in a dispute with a dry cleaner in Florida.  Critics also claim that a former employer accused him of receiving approximately $25,000 in false payments.

Purveyors of short ideas are often attacked by the companies they research, and by investors in those companies.  The fact that Left has survived for over a decade despite various law suits suggests that he is doing something right.  Although Citron has followed Muddy Waters into China, Andrew Left’s longevity is proof that the short-financed business model is sustainable.  Provided you have the stomach and funds to fend off the law suits…




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