Ackman Feeling Shortseller's Sting as Citron Sinks Valeant Stockby , , and
Andrew Left's firm spurs a selloff with revenue allegations
The 45-year-old short seller has done 51 campaigns since 2009
Back at you, Bill Ackman.
Ackman, the billionaire hedge fund manager, has long maintained that Herbalife Ltd. is a house of cards -- a suggestion that’s drawn howls from the company. Now another Wall Street scold, Citron Research’s Andrew Left, says one of Ackman’s picks looks like the Enron Corp. of Big Pharma -- a claim the company, Valeant Pharmaceuticals International Inc., rebutted Wednesday.
Yet as Valeant’s share price plunged anew, Ackman was, in effect, getting a small taste of his own medicine. Left, a small-time short seller, had grabbed headlines and captivated Wall Street, much as Ackman has done with his campaign against Herbalife. While this dust-up might seem lopsided -- Ackman runs a prominent hedge fund, Left a relatively obscure investment and research shop -- it nonetheless underscored how vocal short-sellers can gain attention and turn markets against companies fast.
“If there’s one person in the world I don’t feel bad for, it’s Bill Ackman,” Left, a 45-year-old Florida native based in Los Angeles, said in a telephone interview. “If I could switch bank accounts and hair with him, I’d close out tomorrow. Ackman’s a hedge fund manager who goes short and goes long and sometimes you win, sometimes you lose.”
Assuming there’s been no change in its holdings since the end of the second quarter, Ackman’s Pershing Square Capital Management has lost about $2.8 billion on Valeant as it declined 55 percent from an intraday peak of $263.81 on Aug. 6, according to data compiled by Bloomberg.
“In this business, nothing is personal,” Left said. “He goes home and sees his kids, I go home and see mine, and he does what he believes with his opinion.”
If people had never heard of Citron Research before, they have now. Just after 10 a.m. Wednesday, the firm published a note suggesting Valeant was inflating its sales, igniting the biggest selloff anyone had ever seen in the stock. Laval, Quebec-based Valeant plunged as much as 40 percent, prompting a public response from the company and creating billions of dollars of losses for its hedge fund owners.
In a statement, Valeant said Citron’s research is “erroneous” and that the company derives no sales benefit from inventory held at specialty pharmacies mentioned in the report. It suggested Citron had reached inaccurate conclusions, misconstruing links between them that are explained by logistics and support agreements.
Past foes of Ackman saw irony that a company he’s invested in was sent reeling by a short-seller claiming that its revenue is overstated. Citron, the decade-old stock-commentary site originally founded as Stocklemon.com, said Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. “Is this Enron part deux?” the report said.
Central to Ackman’s bear case on Herbalife is a view that the company’s sales aren’t primarily with consumers but to a network of independent distributors who are suckered into buying weight-loss shake powders they can’t sell. He has evoked the bankrupt Houston-based energy trader himself in assailing Herbalife, saying in a December 2013 e-mail to Bloomberg: “Remember, Enron also had audited financial statements.”
“What goes around comes around,” said Melanie Sloan, partner of consulting firm Triumph Strategy and former executive director of Citizens for Responsibility and Ethics in Washington, an advocacy group that has been critical of short sellers. Herbalife was once one of Sloan’s clients. “Valeant has been getting bad press, raising drug prices. It’s not going to be on the list of honorable companies, so it’s well paired with Ackman.”
Ackman declined to comment on Left or Herbalife. In an e-mail sent earlier in the day to Bloomberg News, Ackman said he acquired 2 million shares of Valeant Wednesday during the stock’s rout. He defended Valeant at the Bloomberg Markets Most Influential Summit on Oct. 6, saying drug companies put their profits into research and acquisitions, rewarding investors and producing more innovative products.
Left, meanwhile, isn’t shy about his past controversies. A section on his website is titled “So You Want to Sue Citron Research." Another chronicles his past legal entanglements, including sanctions by the National Futures Association stemming from his employment at a commodities trading firm that he joined in 1995.
Elsewhere it says Left was “briefly arrested” in 2010 in connection with a “petty legal dispute” involving a dry cleaner and that the charges were subsequently dropped.
“My ex-wife got into a fight with a dry cleaner and I came out there and pushed the guy to the ground and he called the cops,” he said in Wednesday’s interview. The information about the commodities trader is listed because “years ago somebody brought something up that happened when I was 23 years old trying to discredit me. Who gives a sh*t?”
According to the website Activist Shorts Research, Citron has undertaken 51 campaigns against companies in the S&P 500 since 2009, along with several Chinese companies, citing allegations including pyramid schemes, ineffective products and accounting or business frauds. A week after targeting these companies, the stocks have fallen an average of 8.5 percent and are down 18.1 percent one-year later.
Valeant is the sixth company to come into Left’s crosshairs this year. A day after Ambarella Inc. rose to an all-time high of $126.70 a share on June 18, Citron published a report questioning its valuation. The company has lost more than $2 billion in value in the past four months.
Other campaigns include GoPro Inc. and Tesla Motors Inc., though the latter did little to quell investors’ appetite. In 2014, after Plug Power Inc. rallied to a four-year high of $10.31 a share, Left said he was skeptical of the company’s forecasts and said the shares were worth 50 cents. The stock plummeted almost 42 percent that day and has yet to recover -- closing at $2.35 on Wednesday.
Short selling is “noble because the research on Wall Street is so biased," Left said. "You need the other side of the story."
Citron ranks 23rd in Activist Shorts Research’s list of top short-sellers for average one-year returns, behind Ackman’s Pershing Square, which comes in at 21st.
“There are a lot of smart people on both sides of this trade.” said Adam Kommel, president and founder of Activist Shorts Research in New York. “Valeant has been a controversial name and Andrew Left has a really strong record. Almost everything that he targets goes down.”