SEC Imposes $2.5M Fine on Anson Funds in First Major Penalty Over Activist Short-Selling Practices

The US Securities and Exchange Commission (SEC) has handed down its first major penalty in a sweeping investigation into activist short sellers, fining Anson Funds Management and Anson Advisors $2.5 million, according to a report by Bloomberg.

The SEC accused Anson of secretly paying $1.1 million to an unnamed publisher of negative research reports, with the hedge fund allegedly making over $4 million in gains in late 2018 by strategically timing negative reports and social media posts in collaboration with the researcher. These actions were said to have been aimed at driving down stock prices.

While the SEC did not identify the researcher, the timing of the reports coincided with criticism directed at companies Namaste Technologies and India Globalization Capital in September and October 2018, which aligned with bearish publications from Citron Research, led by short-seller Andrew Left. Left has not been accused of any wrongdoing, and Anson settled the charges without admitting or denying the allegations.

The SEC's investigation into the interactions between hedge funds and activist researchers began three years ago, focusing on numerous money managers and more than 50 stocks. Authorities were examining potential collusion to manipulate stock prices through coordinated short-selling efforts. Although Anson was one of the lesser-known names under investigation, its activities came under scrutiny due to the scale of its profits.

Moez Kassam, the founder of Anson, defended the firm's conduct, asserting that its bearish positions on the two companies were eventually validated, as their stock prices plummeted. He argued that Anson's actions not only benefitted its investors but also contributed to broader market efficiency. Kassam also highlighted that the SEC made no allegations of false information dissemination, inappropriate trading, or fiduciary duty breaches.

However, the SEC did criticise Anson for failing to properly disclose its collaboration with activist researchers and the related profit-sharing arrangements to potential investors. This lack of transparency led to the penalty being imposed on the firm.