Short-seller punished for secret payments to researcher

Washington - A sweeping US probe of activist short-sellers has yielded its first notable punishment, while offering a rare glimpse into controversial collaborations between bearish researchers and hedge funds that place big bets against companies.

The Securities and Exchange Commission (SEC) fined affiliated money managers Anson Funds Management and Anson Advisors a total of US$2.25 million (S$3 million) on June 11, accusing them of hiding payments to an unidentified publisher of bearish research. A hedge fund they oversaw generated more than US$4 million in gains in late 2018 by collaborating with the outsider on the timing of negative reports and social media posts, the SEC said. It secretly paid the researcher US$1.1 million.

The SEC did not identify the researcher, who the agency said publicly criticised Namaste Technologies and India Globalisation Capital in September and October of that year. The months and targeted companies line up with bearish postings at the time by famed short-seller Andrew Left’s Citron Research.

Mr Left, who was not accused of wrongdoing by the regulator, declined to comment. Anson did not admit or deny the SEC’s allegations in settling.

A wide-ranging US effort to examine relationships between hedge funds and sceptical researchers began rattling the industry three years ago as investigators set out to gather information on dozens of money managers and activists, as well as transactions involving more than 50 stocks. At the time, people with knowledge of the inquiries said the authorities were looking for evidence that short-sellers were working together to improperly drive down stocks.

Anson was among the lesser-known names said to be facing scrutiny at the time.

The bearish takes on both companies were ultimately borne out, said Mr Moez Kassam, Anson’s founder and principal. Shares of the companies, which later changed their names, now trade below their prices at the time. Spokespeople for the companies didn’t respond to messages seeking comment after normal business hours.

“Anson’s involvement not only benefited our own investors but also the broader market,” Mr Kassam said. “The SEC made no allegations that Anson ever disseminated any false or misleading information into the market, engaged in inappropriate trading or in any way breached its fiduciary duty to its investors.”

That echoes other defenders of short-seller practices who say they should be celebrated for helping to police markets, rather than vilified for knocking down overpriced stocks.

Still, the SEC faulted Anson for omitting key details in its communications with prospective investors. The agency said the firm should have disclosed that it worked with activist researchers and paid them a share of its profits. BLOOMBERG