The Department of Justice and the U.S. Securities and Exchange Commission are investigating dozens of investment firms for their short selling activities.
Some of the well-known investment firms that were named in the Justice Department’s requests include Orso Partners and co-founder Nate Koppikar; Melvin Capital Management and founder Gabe Plotkin; Sophos Capital Management and Jim Carruthers; and Kerrisdale Capital Management.
Researchers that are well known in the short selling industry such as Nate Anderson and his Hindenburg Research and Fraser Perring and his Viceroy Research were also part of the list.
What Are Investigators Looking For?
Sources told Bloomberg that the Justice Department is looking for potential abuses within the trading activities of these firms.
Some of the investigations began in early 2021. The FBI took computers from the home of Andrew Left, the founder of Citron Research, which is known for its short selling trading, sources told Bloomberg.
Left said he has not been accused any wrongdoing.
“It’s very tough to defend yourself when you haven’t been accused of anything,” he told Bloomberg. “I’m cooperating and I have full faith in the system and the First Amendment.”
The Justice Department has also recently subpoenaed some market participants seeking calendars, communications and other records for nearly 30 investment and research companies, according to the sources.
People familiar with the matter also said they wanted records from 36 people that were associated with those companies.
No formal charges have filed.
Short Selling Gets New Scrutiny
The Justice Department could be attempting to determine the relationships between any short sellers, including how research is conducted, and any potentially coordinated arranagements of the stocks declining, according to Bloomberg.
It is unknown which short sellers named in the subpoenas could be investigated in the future, or which ones just have relationships with other companies or are people of interest to the DOJ.
The sources also said that requests for information were also sent by the SEC.
Both the spokespeople and the SEC declined to comment. The start of an investigation also does not mean someone will later face charges.
Representatives for the majority of the companies, includng Melvin, Orso, Sophos and Hindenburg, either declined to comment to Bloomberg or did not reply to messages seeking comment.
“We haven’t been contacted by DOJ, SEC or any governmental authorities about any investigations,” Sahm Adrangi, Kerrisdale’s chief investment officer, wrote in an email. “We literally haven’t spoken to anyone at the government in many years.”
Viceroy’s Perring also said his company did not receive any requests for information.
“We will always cooperate with any such investigations and are happy to assist regulators in carrying out their duties,” he told Bloomberg.
“All our reports are based on information that is publicly available, sourced from records that anyone at any given time could research or find. Our most recent contact with the DOJ was in assisting an investigation into the fraud at a company that we had researched.”
More Firms Being Investigated
In December, Bloomberg's article said that Citron, Anson Funds, Marcus Aurelius Value and Muddy Waters Capital were being investigated.
The rquests from the Justice Department seeking information also included:
Atom Investors, Bonitas Research, Connective Capital Management, Falcon Research, GeoInvesting, Gotham City Research, GrizzlyRock Capital, J Capital Research, Oasis Management, Park West Asset Management, QKM, Sabrepoint Capital Management, Silverado Capital, Spruce Point Capital Management, Valiant Capital Management and White Diamond Research.
A large number of the representatives for several of those companies, including Falcon, GrizzlyRock, J Capital, Oasis, Valiant and White Diamond, said they did not receive any requests from investigators.
“It’s hard for us to comment on something we don’t know anything about,” said Taylor Hall, a representative for Oasis.
Valiant “has a long-standing policy of cooperating with any inquiries it receives from regulators and other government bodies,” but is not aware of being involved in the short-selling probe, chief compliance officer Michaela Beckman said in an email to Bloomberg.
“Compliance with securities regulations has always been a point of significant emphasis at the firm since inception and we have not been subject to any regulatory action regarding insider trading or short-selling in our 13-year history.”
