Since then, C-suite individuals like Elon Musk and Mark Zuckerberg have invoked the doctrine to avoid testifying in various litigation. However, the tides are changing. As federal Judge Iain D. Johnston told Bloomberg Law, “Single moms, single dads, who’ve got part time jobs, are taking classes, are taking kids to daycare—is their time less valuable than the CEO of a major corporation sitting in a meeting? There should be a healthy skepticism of people’s self-importance.”

Biglaw partners are seeing that shift happening in real time.

David Fertig, a partner at BakerHostetler who’s litigated both sides of the apex doctrine, said the question in litigation is shifting to whether the apex witness has unique information relevant to a case, rather than if the CEO is too busy or otherwise important to be deposed. In some instances, legal fights ensue over limiting the scope and length of the deposition, rather than whether the deposition can happen, Fertig said.

“There’s increasing concern and public outcry for people of significant wealth and power to answer for corporate conduct,” Fertig said. “Courts have therefore shown some reluctance to the idea that merely by virtue of their status as senior executives, apex witnesses are immune from deposition.”

And Duane Morris partner Gerald Maatman Jr. said, “There’s no free pass anymore. There’s no presumption that just because you’re the CEO, you get to avoid depositions.”

When trying again to invoke the doctrine earlier this year, Zuckerberg wasn’t as successful as he was in the past. And he’s not the only CEO ordered to be deposed this year.

The tech titan’s change in fortune reflects a backlash against the apex doctrine by judges swayed by populist arguments that it unfairly favors the powerful. McDonald’s Corp. CEO Christopher Kempczinski, Microsoft Corp. CEO Satya Nadella, activist investor Carson Block, Madison Square Garden chief James Dolan, and now Zuckerberg all lost bids in the past year to duck depositions under the apex doctrine in federal courts.

It may not be as radical as plaintiffs attorneys might like — Robbins Geller attorney Jason Forge said “the entire concept is a disgrace” — but there’s still been significant progress pushing against the notion that corporate executives are (sigh) above the law.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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Carson Block’s Muddy Waters wager against a hedge fund favorite, Chinook Therapeutics Inc., took a hit Monday after Novartis AG agreed to buy the drug developer in a deal for up to $3.5 billion.

With the stock surging 58%, its best day since 2015, short sellers betting against Chinook are looking at paper losses of $58 million, according to data from S3 Partners. Monday’s rally erased bearish investors’ gains for the year and put them on track for a mark-to-market loss of roughly $56 million for 2023.

Carson Block’s Latest Short Bet Is Burned by Novartis M&A Deal [Bloomberg]

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But China, large and full of potentially fraud-filled companies as it is, cannot contain Block’s ambitions. Neither can the threat of prosecution or legal action. So Carson the fraud-sniffing dog is taking his billion-dollar beak to new geographies both near and far: Having taken on a Maryland-based energy company this summer, Block is taking on a Uruguayan payment processing firm during its summer.

"If these were serious people who really wanted to run a payments company for the long term, they wouldn't have sold a billion dollars worth of the stock in the first five months of the company going public," said Block in an investor presentation [on Dlocal Ltd.]…. "A spate of recent high-level departures brings to mind the idiom, 'rats fleeing a sinking ship,'" says the report.

Suffice it to say, Block will be on the lookout for any South American men with fake-looking mustaches seeking an audience.

Muddy Waters' Block short in dlocal, cites 'red flags' at conference [Reuters via Yahoo!]

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Presumably, Ma’s Snow Lake Capital made a killing on its short of Luckin Coffee, especially after Carson Block broadcast Ma’s anonymous report on Luckin to the world. Now, it plans to do so on Luckin’s “miracle” recovery.

“I never would have thought the company could come back. Many nearly impossible things happened,” Mr. Ma said. His firm on Monday released a slide presentation and 81-page report making a bullish investment case for five-year-old Luckin, which has revamped its business and corporate governance over the past two-plus years…. Luckin’s shares have gained more than 80% this year, giving the company a valuation of about $4.4 billion. The company has resumed its expansion in China, opening more stores, and grown sales by selling a range of coffee-based beverages that appeal more to Chinese consumers’ tastes. It reported $107 million in net profit in 2021, its first-ever annual profit.

“I’m buying Luckin because I think it is only a matter of time that the company overtakes Starbucks in China,” Mr. Ma said…. “I’m telling the world this is a good company. I have vetted it. I have done my homework,” he added.

And all it took was a raft of fines and firings, a global pandemic and a growing trade/cold war with the United States.

Hedge-Fund Manager Who Helped Expose Luckin Coffee’s Fraud Bets on Chinese Chain’s Comeback [WSJ]

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Professor Joshua Mitts wrote a paper in 2018 on the impact an investor website has on depressing stock prices. Carson Block, an investor specializing in shorts, has had records subpoenaed by the DOJ as part of an ongoing investigation into short sellers and illegal trading tactics based, in part, on work Mitts has done.

And now Block’s taken his objection to the investigation right to Columbia’s doorstep. Per the Wall Street Journal:

Mr. Mitts is up for tenure next month, and Mr. Block appears bent on ensuring he doesn’t get it.

In addition to the formal request to Columbia, Mr. Block sent an email last month to John Coffee, a chaired professor who has taught at Columbia Law School since 1980. He called Mr. Mitts’s research “outright deceptive and misleading” and attacked his work for companies that have been targeted by short sellers.

“You have been bamboozled into assisting him in his campaign that serves his clients’ interests,” Mr. Block wrote in the email.

It’s unclear how any of this would help Block’s cause. If Mitts loses out on tenure because of Block’s lobbying that’s not going to do much to discredit the underlying work. It would be like going out and trying to depress the value of something for your own gain and then being shocked when people don’t trust that the value went down on its own merits.

Block insists that the investors posting about troubled companies aren’t manipulating stock value — indeed, if he’s right, the only manipulation would be the company artificially inflating its value — and produced his own counter-paper to challenge the Mitts conclusion.

John Coffee got brought into the battle and chose a middle ground:

In an interview, Mr. Coffee called Mr. Mitts “one of the best young scholars in the country” and his case for tenure was strong. He also praised Mr. Block as “an entrepreneur par excellence.”

“They’re both talented people,” he said, “but now they’re like the Capulets and the Montagues.”

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Though say what you will about Romeo and Juliet, at least it didn’t turn on disputed calculations in a white paper.

Carson Block’s Latest Short Target Is a Columbia Law Professor [Wall Street Journal]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

Still, there were rumblings as 2021 drew to its miserable close that 2022 wasn’t a year for Left to look forward to. And things have, in their way, gotten a whole lot worse for him.

The U.S. Justice Department has seized hardware, trading records and private communications in an effort to prove a wide-ranging conspiracy among investors who bet against corporate shares, the people said. One tactic under investigation is “spoofing,” an illegal ploy that involves flooding the market with fake orders in an effort to push a stock price up or down, they said. Another is “scalping,” where activist short sellers cash out their positions without disclosing it.

Carson Block, the fiery short seller behind Muddy Waters, was served with a search warrant by an FBI agent in October, said people familiar with the matter, one of whom added that the warrant extended to Mr. Block’s phones. Federal agents took computers belonging to Andrew Left, another prominent short seller….

Not great. And speaking of those having a not great couple of years, the growing federal probe into whether banks got a bit fast-and-loose with information about upcoming block trades with hedge find clients now has a name.

Pawan Passi, who ran Morgan Stanley’s U.S. equity syndicate desk and led the firm’s communications with investors for equity transactions, is among individuals whose activities are facing scrutiny, the people said, asking not to be identified describing the confidential inquiry. Bloomberg reported in November that the company had put Passi on leave.

Anyway, back to kicking someone when they’re already down, the Securities and Exchange Commission has a few more uncomfortable questions to ask the already very heavily questioned cryptocurrency exchange Binance.

The two trading firms, Sigma Chain AG and Merit Peak Ltd., act as market makers that trade cryptocurrencies on the Binance.US exchange. One area of focus for regulators is how Binance.US disclosed to customers its links to the trading firms, the people say…. Corporate documents from 2019 tie Changpeng Zhao, Binance’s founder and chief executive officer, to the two trading firms, and former executives say that as of late last year Mr. Zhao controlled them both…. The former executives said Binance.US’s legal and compliance teams worried that they didn’t have a clear understanding of where the funds the two firms used to trade were coming from.

(While we’re on the subject of ailing cryptocurrencies, let’s just note that things are going exactly as well for Anthony Scaramucci with them as we expected.)

Anthony Scaramucci’s SkyBridge fund of funds fell 8.3 percent during January’s market turmoil and crypto pullback, according to letters sent to investors.

“We believe investors should approach 2022 with humility,” SkyBridge executives Scaramucci, Brett Messing, and Ray Nolte wrote in the firm’s year-end letter.

“Humility” is not usually a word associated with the Mooch. Nor, for that matters, does it describe Father Emmanuel Lemelson, God’s own hedge fund manager. Lemelson moonlights as an “unabashed” priest in his spare time, and it’s good that he’s got that hobby, because he may soon have a good deal more of it, on account of the lying.

A federal judge on Tuesday suggested an “unabashed” Green Orthodox priest and hedge fund manager may face a securities industry ban following a mixed verdict on fraud claims but pushed back on the U.S. Securities and Exchange Commission’s bid for a seven-figure financial penalty.

Justice Department Targets ‘Spoofing’ and ‘Scalping’ in Short Seller Investigation [WSJ]
Morgan Stanley’s Passi Faces U.S. Block-Trading Probe [Bloomberg]
SEC Probes Trading Affiliates of Crypto Giant Binance’s U.S. Arm [WSJ]
Defiant Priest May Face Ban After Verdict In SEC Fraud Case [Law360]
Scaramucci’s SkyBridge Gets Dinged by Bitcoin [II]
Bakkt, Once Wall Street’s Hot Crypto Play, Has Cooled [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

You think this might give Merrick Garland & co. an appreciation for the role short-sellers play in the markets and for the fact that, in this case, anyway, Hindenburg more or less did prosecutors’ jobs for them. But no: Now that Garland has really got a taste for his new job, he’s going for everyone with gusto, no matter how useful.

The probe, run by the department’s fraud section with federal prosecutors in Los Angeles, is digging into the symbiotic relationships between funds and researchers, hunting for signs that they improperly coordinated trades or broke other laws to profit, according to people familiar with the matter.

The government is examining how the investors handle information and set up their bets, especially in the run-up to publication of reports that move stocks. Authorities are looking for signs that money managers sought to engineer startling stock drops or engaged in other abuses, such as insider trading, said two of the people, asking not to be named because the inquiries are confidential….

Underscoring the inquiry’s sweep, federal investigators are examining trading in at least several dozen stocks, including well-known short targets such as Luckin Coffee Inc., Banc of California Inc., Mallinckrodt Plc and GSX Techedu Inc.

Ah, yes, notable non-fraud Luckin Coffee. Good place to start. Suffice it to say, next year doesn’t look like it will be any better than this one for our old buddy Andrew Left, even if he has given up the miserable and thankless short-selling game.

They’re scrutinizing the involvement of about a dozen or more firms -- though it’s not clear which ones, if any, may emerge as targets of the probe. Toronto-based Anson Funds and anonymous researcher Marcus Aurelius Value are among firms involved in the inquiry, the people said. Other prominent firms that circulated research on stocks under scrutiny include Carson Block’s Muddy Waters Capital and Andrew Left’s Citron Research.

Hedge Funds Face Expansive Short-Selling Probe, Exciting Critics [Bloomberg]

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Speaking at a legal conference Wednesday, Securities and Exchange Commission official John Coates said there are “some significant and yet undiscovered issues” with SPACs…. Those issues are “not something that’s going to stop them by any means, but they are relatively as yet incompletely worked through mechanisms, despite the fact they have been around for a while,” said Mr. Coates, who is acting director of the SEC’s Corporation Finance division…. “Their current surge is bringing the level of attention by many more participants in the market than previously had been involved, and that is turning up some questions that have to be thought through more carefully,” said Mr. Coates, who spoke at a legal conference sponsored by the Practising Law Institute.

Coates didn’t elaborate on those issues or questions or what prompted them, but we can’t help thinking that a trading card company mumbling something or other about NFTs taking advantage of the SPAC route at the moment at which both the SPAC craze and bored hunger for spending your money on crap abate as the pandemic subsides and people are mercifully able to do something else with their lives might have something to do with it.

Topps, which is best known for its baseball cards and Bazooka candy line, has agreed to go public through a merger with Mudrick Capital Acquisition Corporation II, a special purpose acquisition company, that values Topps at $1.3 billion…. While Topps is best known for its sports trading cards, it has branched out into interactive mobile apps to connect collectors and recently expanded into nonfungible tokens…./“This is the icing on the cake, going digital completely, with the analog still in place,” [Topps Chairman Michael] Eisner said.

A more perfect nutshelling of this deal than that perfectly meaningless and self-contradictory statement we certainly can’t imagine. It must be nearly impossible for the folks at Patreon to hold themselves from taking advantage of these rubes while they still can.

And speaking of getting in a little late, Jim Cramer thinks it’s a great idea for at least two companies.

“If you care about the future of either company or the long-term trajectory of their stocks, issuing shares up here is the right move,” Cramer said. “But the ‘hold the line’ crowd they hate these offerings … and they despise anyone who defends them….”

“AMC and GameStop need money,” Cramer said. “Raising capital is good for both companies and over the long haul, what’s good for the company should be good for the stock.”

For now, let’s give the last word to Carson Block, who ties these storylines together quite nicely.

"You've got the companies that are really deserving of being shorted, and then you've got the companies that you actually can short from a technical perspective. A lot of the intersection right now is SPACs."

Topps to go public through SPAC deal as baseball card company ventures into NFTs [CNBC]
SEC Official Warns on Growth of Blank-Check Firms [WSJ]
Patreon’s Valuation Triples to $4 Billion as Platform Draws Creators, Fans [WSJ]
Cramer says AMC, GameStop plans to sell more shares will be good in the long term [CNBC]
Short-seller Carson Block discussed GameStop, SPACs, and Archegos in a recent interview. Here are the 10 best quotes. [BI]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Muddy Waters Research founder Carson Block said Joyy’s livestreaming service YY is “guilty of bot forming, creating fake transactions and having fake users….”

In a 71-page report, Muddy Waters alleged evidence of revenue inflation: livestreamers who got paid during long periods of absence or inactivity; mis-matches with local credit reports it obtained; and payments originating from company servers. Muddy Waters also said it holds a short position in Joyy, meaning the firm will benefit financially when the shares drop….

“Will Baidu really try to buy ‘growth’ in the form of an almost completely fake business?” Muddy Waters asked.

Of course, Joyy and its backers say Block doesn’t know what the hell he’s talking about: Those bots and bogus livestreamers aren’t about bulking up the company’s numbers but about driving interest among, you know, actual users, they say. Whether or not that’s true—and it certainly doesn’t really sound true—we don’t like their chances against someone who’s batting pretty much 1.000 on Chinese soil.

Video Giant Joyy Dives After Muddy Waters Labels It a Fraud [Bloomberg]

And so it was that an unsolicited 89-page report accusing a Chinese coffee chain of accounting issues and other malfeasance crossed Block’s desk and became a tweet alleging the same. This did not sit well with Left, who in addition to having built his own career out of company-destroying tweets has also been known to go long every now and again, for instance, on Luckin Coffee. This fine purveyor of caffeine, Left insisted, was “on fire,” a formal rating he assigned based on his own, non-anonymously sourced research.

Alas, Left should have known better than to go all in against Block, who has kind of a nose for Chinese frauds.

Luckin Coffee Inc. disclosed Thursday that its board is investigating reports that senior executives and employees fabricated transactions…. Luckin shares collapsed as much as 81%, the most intraday since its IPO last May….

“There was a piece of research circulated by an anonymous third party and Muddy Waters ran with it, more power to him,” Left wrote Thursday in an email to Bloomberg News. “I saw the shareholders of the company and did some research and questioned the accuracy of the anonymous info. It turned out to be correct. Kudos to those who stuck with it.”

For his part, Block isn’t interested in rubbing this in Left’s face. In these troubled times, when many are going short on short-sellers, he has more high-minded concerns.

“Luckin shows exactly why we need short sellers in the market,” Block said in a statement emailed to Bloomberg. “We believed this report was credible when we read it, and that’s why we took a position. This is again a wake-up call for U.S. policymakers, regulators and investors about the extreme fraud risk China-based companies pose to our markets.”

Muddy Waters Wins Twitter War With Citron Over Luckin [Bloomberg]

But it turns out that maybe this was all about the fact that Burford Capital's CEO and CFO have been having a sexual relationship, for at least 27 years, because that's when they were married to each other.

FOR SHAME, Burford Capital! What are you going to do about this?

Burford Capital Ltd. reassigned its finance chief, who is married to the chief executive, following investors’ concerns about their relationship, the international litigation-finance firm said Thursday.

Elizabeth O’Connell will become chief strategy officer. Jim Kilman, who was vice chairman of Morgan Stanley Investment Banking before joining Burford as a senior adviser in 2016, will take the CFO role immediately, the firm said.

Now, we're hardly one to hate on a relationship that can thrive at home and at the office, but it does not look great to have your CEO and CFO literally in bed together when guys like Carson Block are out there unsubtly accusing your firm of being full of shit. But it looks almost even worse to suddenly agree that this is a bad executive structure ten years into operating under the said structure.

But regardless of what you think or how this might shake out, one thing is very clear: Carson Block is an enemy of love.

Burford Reassigns CFO After Investors’ Concerns About Marriage to CEO [WSJ]

Mr Block’s father Bill was an equity analyst with a reputation for credulity, a fact brought home when an acquaintance told Carson over a meal that he would get short selling ideas from looking at the stocks Bill Block had been recommending.

Mr Block went to work with his father, a period he describes as “very embittering” as he was “lied to by a parade of management” of internet companies. He quit equity analysis for law school, later moving to Shanghai before leaving law and setting up the self-storage business in 2007.

This led more or less directly to the Carson Block of today—and back to his father—as Block learned that the manager of the business park housing his storage facility was stealing his rental payments. So Block stopped paying rent, and when the manager threatened to evict his business, Block stockpiled food and water and prepared to self-store himself behind barricaded windows.

The experience, which eventually resulted in the US consulate stepping in, was formative in helping Mr Block “see the matrix” in China and “question everything”….

His move into corporate investigations came when his father grew interested in Chinese companies listing in the US. Lunch with an executive of a company called Orient Paper led to an invitation for him and a friend to Orient’s factory. A long delay en route at Shanghai airport gave them opportunity to pore over Orient’s filings.

“We were laughing” at the claims in the filings, said Mr Block. “We knew there was significant bullshit here.”

The latest place Block sees some serious bullshit is, fittingly, in Boris Johnson’s Britain. Specifically, in the not-at-all shady sounding litigation finance business of Burford Capital, which Block says is a “poor business masquerading as a great one.”

The US hedge fund criticised the way Burford measured returns on its investments, saying they were “heavily manipulated and greatly misled investors” and that much of its profit since 2012 had come from just four legal cases.

Of course, two can play at the ad hominem game, although only one is £1 billion lighter as a result.

A strongly worded letter by Burford Capital said the Muddy Waters report was “false and misleading,” and full of “factual inaccuracies, simple analytical errors and selective use of information”.

Carson Block, the short-seller taking aim in the UK market [FT]
Burford Capital shares down 65% in further blow to Neil Woodford [Guardian]
Burford Capital hits back at ‘false’ claims that wiped 65% off value [Guardian]

After some missteps in the U.S. and Germany, noted short-seller Carson Block is returning to a land where he never has to look far to find some cooking of books or other nefarious doings: China. And boy, has he found a doozy, if he does say so himself. TAL Education offers after-school tutoring and the like, and is worth something on the order of $20 billion, on account of the many millions of newly-economically-empowered striving Chinese parents seeking every advantage for their little ones. Oh, and—according to Block, anyway—on its own brilliant synthesis of traditional Chinese overstatement with one of the finest scams America’s ever invented. Truly, this is a globalist racket par excellence, in his rather considered opinion.

Estimates indicate Tal has overstated net income by at least 43.6 percent for the last two fiscal years, Block's firm Muddy Waters said in a release Wednesday.

"TAL combines the old school China fraud playbook of simply penciling in more favorable numbers with the more sophisticated asset parking fraud of Enron," the short seller added in a report.

Short seller Carson Block compares hot China stock Tal Education to Enron; shares dive [CNBC]
Short-seller Carson Block targets TAL Education [FT]

A few months ago, a French corporate security and intelligence consultant who may or may not have been working for a company that noted short seller Carson Block thinks sucks, put on a little pantomime for the Muddy Waters founder. Block was not impressed with Jean-Charles Brisard’s turn as a thespian.

As it turns out, that may be because Block himself knows how to play a part. Specifically, the part of “Dupre Analytics,” a company he made up to probe and then trashanother Chinese company. It was an Oscar-worthy performance, if you ask Block.

Mr. Block said Muddy Waters used an alias, Dupre Analytics , to allege in a July 2015 report that the founder of Chinese aluminum producer China Zhongwang Holdings Ltd., Liu Zhongtian, was committing fraud. The report claimed Mr. Liu used billions in loans from Chinese banks to secretly purchase his company’s aluminum and ship it overseas to facilities he controlled to make the company appear more profitable than it actually was….

Mr. Block said he sent investigators around the world to gather evidence to produce the report. His firm wrote the Dupre report in a disorganized way to ensure no one would associate it with Muddy Waters’ style, Mr. Block said….

Mr. Block said his firm made a only “very small profit” from trades around China Zhongwang—which he is no longer shorting—but considered it “the best work we’ve ever done.”

Muddy Waters Is Mystery Author of Report Exposing Chinese Billionaire’s Ties to Giant Aluminum Stockpiles [WSJ]

Carson Block is a widely-feared short-seller whose mere mention of your company’s name can send your shares south in a hurry. He achieves this with a finely-tuned bullshit detector that is pretty likely to be triggered by an international investigator purporting to be a Wall Street Journal reporter.

The man who showed up wasn’t a Journal reporter. According to video footage of the encounter reviewed by The Wall Street Journal and two people who know him, it was Jean-Charles Brisard, a well-known corporate security and intelligence consultant who lives in Switzerland and France….

Mr. Block said he suspected the individual who met him at the hotel of impersonating the Journal reporter. Shortly after the meeting began, Mr. Block whipped out his cellphone and began to film the encounter.

“I’d like to know who you really are,” Mr. Block said, according to the video of the encounter. Admitting he didn’t work for the Journal, the impostor said: “I wanted to meet you. There is no other way to meet you.”

To Meet Carson Block, He Posed As A Journal Reporter… And Got Caught [WSJ]
Video shows Muddy Waters encounter with man it links to Casino [Reuters]