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Journalism of Courage
US-based short-seller Citron Research was culpable of market misconduct with the publication of a misleading stock research report in June 2012, Hong Kong’s Market Misconduct Tribunal’s (MMT) said in a ruling on Friday.
The case comes after Hong Kong’s Securities and Futures Commission (SFC) alleged that Citron founder Andrew Left engaged in market manipulation by spreading false or misleading information on Hong Kong-listed Chinese property developer China Evergrande Group.
“The MMT has found that Andrew Left is culpable of market misconduct,” a spokesman for the SFC said. The SFC alleged in December 2014 that Left made HK$1.7 million ($219,216) after knocking nearly 20 percent off Evergrande’s share price with the publication of the report, in which he claimed the developer was insolvent.
The MMT found that Left had disseminated “false and/or misleading” information that he knew would likely have an impact on the market and was therefore “reckless” or “negligent”, Left’s lawyer Timothy Loh told Reuters. Left compiled his report using material provided by a whistleblower. Because the whistleblower may have been acting in bad faith, Left should have made more extensive efforts to verify the information, the MMT found.
“I think the requirements implied by the Tribunal – to seek expert advice – sets a very high standard for someone making a market comment,” said Loh. “There is very little discussion in the ruling on the issue of freedom of speech which was central to our argument.” The MMT will determine a punishment at a later date, which could include forcing Left to disgorge his gains, requiring him to pay costs, or banning him from the Hong Kong market. Left, who can appeal once a penalty has been determined, could not immediately be reached for comment.
The finding comes amid growing fear that negative research and market commentary is being muffled in Hong Kong by both companies and the regulators. Earlier this year a separate tribunal partially upheld SFC allegations that Moody’s Investors Service broke its conduct rules with a 2011 report in which it raised corporate governance concerns about 49 Chinese companies. Moody’s is appealing the ruling and has said the SFC action is an attack on freedom of speech.
“In Hong Kong, there’s a culture of regulatory bias against critics,” David Webb, a prominent Hong Kong corporate governance activist and investor told Reuters last week. He said the Moody’s action in particular had a “chilling effect on negative research”. The Moody’s tribunal said that freedom of speech is not absolute and carries with it “special duties and responsibilities”.
