Last year, Citron Research’s Andrew Left took his trusty hatchet to Valeant Pharmaceuticals, dubbing it the “Pharmaceutical Enron” and sending its share price down 90%. Last month, however, he learned that kind of thing doesn’t fly in Hong Kong. You see, as Moody’s discovered before him, if you have a negative opinion about a Hong Kong-listed company, particularly if that company happens to hail from the mainland, you’d better make sure to dot your I’s and cross your T’s and while you’re at it maybe just don’t say anything at all if you don’t have something nice to say.
Andrew Left, the founder of the California-based firm Citron Research, was barred on Wednesday from trading in Hong Kong for five years. He was also ordered to surrender more than $200,000 in profit from trading shares of Evergrande Real Estate Group Limited, a developer in the southern Chinese city of Guangzhou.
The case, filed in 2014 by the Hong Kong Securities and Futures Commission, has heightened fears that regulators in one of Asia’s biggest financial centers are seeking to suppress critical commentary and the free flow of financial information….
The punishment was for what the regulator had said was “false and misleading information” about Evergrande in a report that Citron published in June 2012.
Those allegations, denied repeatedly by Evergrande, included claims that the developer was “insolvent and had consistently presented fraudulent information to the investing public.”
Now, those kinds of accusations can fly safely if the company is listed in, say, Canada. But Left may wish to avoid making them for a good deal longer than five years in the Special Administrative Region.
“There should be no chill in respect of reports that are soundly and reasonably prepared,” said Mr. Steward, who now heads enforcement at the Financial Conduct Authority in Britain. “At the same time, the investing public needs protection from the cynical use of false or misleading publications that drive down share prices for the wrong reasons, and there should be accountability for shoddy research especially when it affects stability in our markets.”