Yahoo Finance Activist Hedge Fund Fined for Secret Payments to Researcher
(Bloomberg) -- 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.
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The Securities and Exchange Commission fined affiliated money managers Anson Funds Management and Anson Advisors Inc. a total of $2.25 million on Tuesday, accusing them of hiding payments to an unidentified publisher of bearish research. A hedge fund they oversaw generated more than $4 million in gains in late 2018 by collaborating with the outsider on the negative reports and social media posts, the SEC said.
Anson secretly paid the researcher $1.1 million after their publication in September and October of that year, according to the SEC. The regulator says the payment was made through a third party.
The SEC didn’t identify the researcher, who the agency said publicly criticized Namaste Technologies and India Globalization 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.
Left, who wasn’t accused of wrongdoing by the regulator, declined to comment. Anson didn’t admit or deny the SEC’s allegations in settling.
A wide-ranging US effort to examine relationships between hedge funds and skeptical 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 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, Anson said in a statement shared by Moez Kassam, the firm’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,” the firm said in the statement. “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.
“Anson Funds inaccurately recorded these payments as payments to the third-party intermediary for such research services and in doing so violated the Advisers Act books and records provisions,” the SEC said in an order. “Further, by failing to implement its written policies regarding the accuracy of records, Anson Funds violated the Advisers Act compliance rule.”
(Updates with addition details on payment in third paragraph.)
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