to these bribes, subsequent land purchases, and related real estate construcnon acnvines, Evergrande has employed a Source: Evergrande filings, Citron research. Note: Evergrande reported 35bn of equity including minority interests. .. Hunan Xiongzhen Investment Co., Ltd (湖南雄震投資有限公司). [1]. Andrew Left heads a Los Angeles-based company, Citron Research, an in- depth analytical report on Evergrande Real Estate Group Ltd, now. Evergrande Real Estate Group Limited concerning the Group in the Report. relation to a report (the ”Report”) issued by Citron Research.

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Left further argued that it was enough to avoid negligence for an outsider like a short-selling stock commentator who relies on public information and has no special relationship like a company insider or licensed analyst to make clear they repoorts on public information and set out that public information.

The Tribunal rejected such an interpretation and held that the section imposes a duty of care on all persons who choose to disseminate information that is likely to have an impact on the market and the duty of care is owed to the market.

Recklessness The test in respect of recklessness which is subjective was: By GMT, Evergrande shares were down Comments As the Tribunal emphasised in its ruling, the purpose of s. These esgate cases will likely make market commentators and analysts think and write carefully and act prudently when publishing commentaries against listed companies. Recklessness The test in respect of recklessness which is subjective was: Citron Research had established a certain reputation for itself, with a degree of notoriety, and was therefore likely to be given attention, especially given the sensationalist language used in the Report.

Likely effect on the market The Tribunal made fitron clear that the test was a predictive, objective test, namely the Tribunal was required to ask itself not whether the posting of the Report on the Internet did have an impact on the Hong Kong market by inducing the sale or purchase of Evergrande shares, but instead was required to determine whether, having regard to all relevant factors, it was probable at the time when the Report was posted that it would have such an effect.

Like Muddy Waters, Citron Research, run by Andrew Left from his Beverley Everhrande, California home, is known for targeting companies with research exposing what it claims are financial irregularities. When Mr Left published the Report, was he aware of the risk that the information in question was false or misleading?

Hong Kong Market Misconduct: Trading volume spiked to the highest since Novemberwith about million shares changing hands. According to Mr Left, he did not take the contents of the Draft at face value and instead eliminated any information from it that could not be verified by publically available information.

Later, Evergrande held a telephone conference with analysts again denying the allegations. The MMT rejected this argument saying that Section on its own words applied to everyone who disseminated information that might affect the market and did not restrict liability for negligence to those with a special relationship to the market.

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Left reviewed the material, deleted publicly non-verifiable citrn using the internet and company filings, updated the numerical information and published it as his report. He had been prompted to do so on this occasion by the receipt of an anonymous package containing a lengthy analysis of Evergrande Draftmaking serious allegations of insolvency and fraudulent accounting.

The Tribunal concluded that, even without any form of promotion, it was likely – indeed almost inevitable – that the Report would have become known to the Hong Kong market within a very short time of its publication. In this regard, what could not be ignored, the Tribunal said, was that the allegations contained in the Draft were based on a supposed understanding of the relevant accounting regulations and everggrande, these being of some complexity, and in important respects, particular to Hong Kong.

Previous Item Next Item. Knowledge The test as to knowledge was whether Mr Left knew when he published the Report that the information in question was false or misleading. It can be readily appreciated that if a person who disseminated information has knowledge or is reckless, which is tantamount to knowledge in most cases as to whether the information is false or misleading as to a material fact, then he should be found liable under s.

The Tribunal agreed with the SFC and ruled that the only information available to Mr Left was information in the public domain which was the information he used as the basis onn the Report. He had been prompted to do so on this occasion by the receipt of an anonymous package containing a lengthy analysis of Evergrande Draftmaking serious allegations of insolvency and fraudulent accounting.

The test in respect of negligence which is objective was in compiling and publishing the Report, did Mr Left exercise that level of care to avoid the inclusion of false or misleading information as to material facts that is realistically required of a reasonably prudent person carrying out the function of a market commentator or analyst?

Please contact customerservices lexology. Citron Research issued the report. The Tribunal found that he was reckless when he published the Report, having consciously disregarded the real risk that the Report was false and misleading as to material facts. Left has since criticised the MMT decision as an attack on freedom of speech and free flow of information in financial markets. Background Andrew Left heads a Los Angeles-based company, Citron Research, which publishes stock commentaries on its website.

Misleading the market: an analysis of the Citron Research case

On 26 Augustthe MMT issued its report finding that Left had engaged in market misconduct within Section in that:. At the hearing, Left reargued the point saying that he had been denied a reasonable opportunity of being heard as a result. The fact that Mr Left had many years of experience in publishing corporate commentaries, seemingly specializing in hunting down corporate fraud, meant that he must have appreciated that anonymous reports of this kind making allegations of fraud, payment of bribes and other illegal dealings required careful scrutiny.

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If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries lexology. It remains to be seen as to how the content and the scope of the duty of care which is owed to the market and its standard are to be developed in future cases. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

Accordingly, the Tribunal had no difficulty in determining that the Report, when posted on the Internet, was very likely, within a matter of a few hours, to have a material impact on the trading in Evergrande shares on the Hong Kong market. Deacons – Peter So. Nor did he approach Evergrande for clarification of those matters.

Citron Research had an easily ascertainable, somewhat unnerving, reputation, the Tribunal said, and the Report was a substantial document, filled with data, graphs, rewl and the like. According to Mr Left, he did not take the contents of the Draft at face value and instead eliminated any information from it that could not be verified by publically available information. Evergrande, the second-largest mainland China developer by sales, has grown aggressively using debt to fund land purchases, though its acquisitions have slowed this year.

It appears that the Tribunal was referring to the law of ktd as affecting the right evvergrande freedom of expression.

Did he nevertheless, although aware of a and b above, go ahead and publish it? The Tribunal had no difficulty in concluding that when Mr Left published the Report he consciously disregarded the real risk that the Tld, even after his amendments, was false and misleading as to material facts. Andrew Left heads a Los Angeles-based company, Citron Research, which publishes stock commentaries on its website.

Misleading the market: an analysis of the Citron Research case | CSJ HKICS

evergrandw Nor did he approach Evergrande for clarification of those matters. The MMT decision was carefully made with an awareness of the need to balance freedom of speech and investor protection. Section 1 of the SFO prohibits dissemination of false or misleading information about securities or futures that is likely to induce another person to trade in the securities or affect the price of the securities.

In this regard, what could not be ignored, the Tribunal said, was that the grop contained in the Draft were based on a supposed understanding of the relevant accounting regulations rstate standards, these being of some complexity, and in important respects, particular to Hong Kong.

Dissemination of information There was no dispute that Mr Left headed the research team who prepared the Report and had authorized its dissemination on the Internet, by giving the relevant instructions.