For the second time this week a stock is crashing on hedge fund research.
j2 Global is down 20% after Citron published an unreservedly negative research report online. I’ve only had a chance to glance through the write-up. Andrew Left at Citron is a smart guy. I’m sure he’s done a ton of great work on JCOM. That work isn’t the core of what Citron put online.
What Citron published is a really smart version of trolling. If you wrote a research report about a person you fired for stealing it would come out something like Citron’s published work on JCOM.
By all means, judge for yourselves. Here’s the Report.
Slide 12 is an early favorite of mine though, again, I haven’t had a chance to read the work carefully:
Left is an “activist short”. He was famously, vocally, short Valeant way back when Bill Ackman was a genius investor.
There’s nothing illegal about taking a huge position then trashing a company. Whitney Tilson essentially announced Lumber Liquidators is giving people cancer earlier this week. I don’t know if Whitney is a doctor but I’m positive he had a bearish position when he announced his findings.
I’m a big fan of the First Amendment. I have a connoisseur’s appreciation of what amounts to talking trash on television. I openly tell my children the reason they aren’t allowed to swear is because they don’t know how to do it as well as daddy. [Note: Mrs. Jeffmacke doesn’t condone this policy].
But should making money by front running your own news releases be legal?
In the right hands, getting short then loud creates a real negative catalyst from the air. It’s like taking out a huge homeowner’s insurance policy then burning your house down only it’s legal.
Is everyone comfortable the this process? Do normal investors fully grasp how much money is being made by a very small group of traders with the power to completely destroy a company in public?
Millions and millions of dollars are being made today by a slideshow with some numbers and a ton of poop emojis.
It’s not just Citron. Anyone able to front run the publication of the Poop Emoji Report on JCOM is raking it in right now. Citron’s reputation is growing, as is Left’s bank account. I would be shocked if there weren’t a dozen people who got short ahead of this being published. This isn’t a war crime but a decent amount of cash is flowing to a group of people who traded on material non-public information ahead of its release. Obviously JCOM bulls are getting pounded.
Good on Left. But should this be legal? Because I don’t think it should. It feels really wrong.
As a student of Stupid Prosecution it feels different getting short and loud than hyping a company. It’s hugely problematic for a company to get hammered this way. The only thing happening at JCOM right now involves dealing with Citron’s Poop slides and the 20% stock crash. Being attacked by a short creates genuine fundamental problems for companies. Even when the short is wrong.
Ask Herbalife.
This all seems like the kind of thing the government would look to stop. Getting short and loud is behavior that makes the public correctly distrust the market.
It’s not illegal but it’s not right.
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If it were possible for the common trader to short, say, housing, do you think the bubble would have been blown so large? Such trades were limited to a very tiny clique…and they profited largely because they were virtually alone. All the bull propaganda forces were fully engaged and people who know nothing about markets were extended leverage far beyond anything they could ever hope to repay.
The only remaining market where true price discovery is possible is the commodity futures market (and that’s arguable, on thinly traded items). I’d say it works quite well. Indeed, I have seen a number of articles where farmers cry that they don’t have a futures market for their particular crop. They generally get fucked by oligarchic interests, and they know it.
I think this sort of tactic ‘feels’ wrong because it borders on the edge of libel. If corporations are considered a ‘person’ in the eyes of the Supreme Court and afforded their 1st amendment rights, then it stands to reason that libel against a company (and profiting from said libel) is against the law. Our markets are so hypersensitive to negative information…and there’s been such an explosion of negativity with the growth of social media…that it seems like we should be protecting our financial system from this profiteering. Andrew Left and Carson Block literally have money printing presses in their basement.
Positively illegal.
Never know when you are being serious so I don’t know if I agree or not. I sense sarcasm.
If investment banks are allowed to hype company valuation estimates (like Morgan Stanley putting a $450 price target on TSLA ) and recommend you buy all their overly expensive IP0 trash, then CITR0N and Carson Block should be allowed to do their thing also.
Both are wrong, but we just can’t ignore the evil cheer leaders and vilify the opportunistic pessimists
Agree.
These are not even remotely the same. Let’s say you want to see a new movie, and critics are split on it. Some recommend it wildly, others are more droll. You go to the theater and some dude is outside telling people that the movie is fucking awesome and they have to see it. Maybe it attracts a few more people. The theater is half full and 30 minutes in, everyone gets a simultaneous text that reads “There’s a high probability this theater will go up in flames at any time. Flame emoji.” Meanwhile, some other guy is at the door charging people to exit the theater. By the time the firefighters get there, the dude is gone and your daughter is knocked up.
You get the idea. There’s a big difference between pumpers and the semi-credible guys claiming fraud on Twitter or SA. You can see the difference in price action.
That escalated quickly
Definitely agree and there should be some regulation into this stuff.
With that said Citron has been hitting home runs over the last few years.
Wouldn’t be necessary if there were absolute transparency and simplicity. I liked what that $NAT guy had to say on CNBC today. Mr. Herbjørn Hansson. (I like to think of him as Herbie.) I wouldn’t trust him as far as I could throw him but he appears to be the quintessential Founder, Chairman and CEO of a real business; a fine rarity. But then I’ve been snookered before.
CNBC rarely impresses me but Michele Caruso-Cabrera and Simon Hobbs were on fire today. I don’t even like M. C-C.
Is it wrong or should it be illegal? Now that I’ve had time to think about it, I say emphatically, “No!”. It’s a natural part of the food chain and there should be more activist shorting.
Great posit!
I’m in the camp that it should be legal, but that these people and companies who are notorious shorts (or longs for the matter) should have to hold for a certain amount of time, say 90 days, and can’t cash out. This way, the market will decide.
Sure, if you want to be civilized about it. It definitely draws a line — somewhere.
boyaj, I really don’t know what I’m talking about and you sound sincere. By the way, I like your humpty dumptys. Is that the point of the eggs?
Vampyr, the reason I’d advocate a time limit is that it’s totally objective and not open to interpretation.
As to your question about the eggs, it’s actually the picture of the Salvador Dali museum in Figueres, Spain. He’s one of my favorite artist, and I had visited the museum a few years ago. An extremely bizarre yet awe inspiring place in a small town.
Great taste boyaj! I’m very impressed and happy to know Dali is a favorite of yours. Now I have a great, simple reason to go to Figueres, Spain. I like my plans to be simple and direct.
There used to be a small, private collection of Dali in St Petersburg, FL that wowed my husband in the 90s. I’m not sure if it is still there or if the collection has been sold. Ah, it’s still there but it has expanded a bit. http://thedali.org
Last I checked it is still illegal to manipulate stocks to one’s personal gain. When someone like Left or Block can post literally any idea they conjure up to defame a company and announce their “short” without any recourse if they are found to have embellished the truth, distorted reality or even fabricated their own version it simply because they have 1st amendment rights, then the market is closer to the wild west than first imagined. I also believe this should be just as applicable to blatant pumps, like the aforementioned pie-in-the-sky TSLA price target foisted on the market by a major underwriter of their secondaries and warrant issuances in MS.
What is more nefarious, Left exists his shorts sometimes only days after his hit pieces are released: see his AMBA trade, for instance.
These guys may have had good calls in the past, but a great many of them proved to be very poorly researched and failed miserably far after they exited their trades: see QIHU in the case of Block, for example.
Companies often depend on capital markets for financing by means of warrants, secondaries, etc. They also may depend on SBC to retain top talent. If their share price crashes based on false allegations, it could and does materially affect these aspects of their businesses, but pleading this case in the current judicial system is extremely difficult due to protection of that indomitable 1st amendment right.
One solution may be to hold these guys to a moratorium on exiting their shorts, say 12 months. Another possible approach to this could be requiring the shorting entity to disclose to the target company their report 30 days before going to the public, giving the company time to address and possibly place an injunction against the release of the report given falsehoods/errors contained therein.
Honestly, there are so many broken and unfair attributes of the equities markets that tilt the scale to benefit of the MMs and participants with the most capital: ex. blatant insider trading, no uptick rule in AH, many brokers not allowing AH trades, no options trading in AH, instantaneous triggering of trades based on algorithmic processing of headlines/PR, etc. It is no wonder most retail money remains on the sidelines.
As long as they are getting valid borrow on the shares I don’t have an issue with this. The HFTs putting out offers they never intend to be filled and cancelling them sub second is a much bigger issue to me. I’d much rather see a rule saying every offer needs to be available to anybody for 10 seconds before allowed to cancel.
I love the spoofing element inside the book.
Why should the equity market not be treated exactly like the commodity futures market? I’ll tell you why: wall street promoters could not make egregious profits thereby. I can go long or short any tradeable commodity in an instant and terminate my position just as quickly. Now that’s a free market. A liquid market. Informational attempts to manipulate it generally fail as there is no monopoly on information in a free market.
What you are talking about has more to do with liquidity and the nature of the asset under consideration. You cannot besmirch Corn in the same manner you can the company of an illiquid Chinese ADR, for example.
@syntecventures – You obviously do not follow the corn market.
As long as they let you know they are short
who cares.Ceo’s front run everything all the
time.Even stevens.