GameStop, Nvidia Short Seller Hit With SEC and Criminal Fraud Charges

Andrew Left and his firm Citron Capital—among the most prominent GameStop short sellers amid the meme stock boom—were charged Friday by both the SEC and the U.S. Department of Justice for a multi-million-dollar fraud scheme, prompting fans of the video game retailer and Roaring Kitty’s cult following to take to social media to celebrate.

The U.S. Securities and Exchange Commission (SEC) alleges that Left and Citron Capital were publishing false and misleading statements regarding his stock recommendations between 2018 and 2020.

On at least 26 occasions, the SEC alleges that Left used Citron’s newsletter to recommend taking long or short positions which would be consistent with his own and Citron Capital’s positions. Following these recommendations, the price of the named stock would move an average of 12%. Once the stocks moved, the SEC alleges that Left and his firm would reverse their positions to benefit from the new stock movement. 

This pattern has pocketed Left and his firm $20 million, according to the SEC complaint. Left allegedly bragged to colleagues, per the complaint, that the scheme was akin to taking "candy from a baby." The complaint does not allege that GameStop was one of the stocks that he attempted to manipulate to his advantage, however.

“Andrew Left took advantage of his readers.” Kate Zoladz, Director of the SEC’s Los Angeles Regional Office, said in a press release, “He built their trust and induced them to trade on false pretenses so that he could quickly reverse direction and profit from the price moves following his reports.”

The SEC is seeking various financial penalties from Left and Citron, as well as "conduct-based injunctions, an officer-and-director bar, and a penny stock bar against Left."

The Justice Department's complaint covers similar ground, but puts the criminally fraudulent earnings total at a lesser $16 million tally. But while the SEC is seeking a civil punishment, the Justice Department's charges are criminal in nature, and could land Left in prison if convicted.

"Left is charged with one count of engaging in a securities fraud scheme, 17 counts of securities fraud, and one count of making false statements to federal investigators," the DOJ press release reads. "If convicted, he faces a maximum penalty of 25 years in prison on the securities fraud scheme count, 20 years in prison on each securities fraud count, and five years in prison on the false statements count."

Who is Andrew Left?

Left owns hedge fund Citron Capital, but is best known for Citron Research, which publishes a newsletter which he authors and edits. Through this, he has made a name for himself as a notorious short seller, with GameStop (GME) being one of the most notable stocks he took a stance on. 

A short seller bets against a stock by borrowing shares, selling them instantly, and hoping the price will drop so they can buy them back at a cheaper rate. Short sellers are considered by GameStop fans to be the villains of the meme stock saga, as they were attempting to drive the stock’s price down. Left and his fund were among the primary antagonists in that effort.

Roaring Kitty, also known as Kieth Gill or DeepFuckingValue, spotted this trend and called out hedge funds for short selling the stock. In turn, Gill helped rally the Reddit WallStreetBets troops to buy up shares, and helped trigger a short squeeze—a situation where short sellers are forced to buy shares to cover their positions, thus driving the stock price up further.

Melvin Capital, a hedge fund that was shorting GameStop, was forced to shut down due to the damage caused to the firm by the short squeeze. Fortunately for Left, Citron Capital did not suffer the same fate, but he remained one the major enemies of Roaring Kitty’s cult following.

Fuelled by a hatred for the traditional financial system following the 2008 financial crisis, followers of the meme stock influencer have rabidly attacked those who speak against GameStop. For example, Reuters reported that at the height of meme stock mania in 2021, short sellers were even receiving death threats, with authorities being called to investigate.

But the death threats and short squeeze didn’t stop Left from shorting GameStop. Earlier this year, three years after the initial short squeeze, Left’s firm finally abandoned its GameStop short position following another rally in the meme stock’s valuation.

“We respect the market’s irrationality,” his firm wrote on Twitter, adding that the Roaring Kitty saga is “an insult to the capital markets.” 

GameStop enthusiasts in Reddit's Superstonk community are celebrating the charges.

Edited by Andrew Hayward