How whistleblower Andrew Left became the culprit of the stock market meme craze

One of the quirks of modern securities regulation is how much you can get away with crushing small investors by touting speculative penny stocks and how much heat you draw when you warn them about the dangers of these dubious stock pumps.

That seems to be what happened to a guy named Andrew Left, a short-seller of some sort. He’s done a great job over the years warning the market, often on Twitter, about overvalued stocks and publicly traded companies that are outright scammers. He then shorts them an investment technique where you borrow shares of the target company and sell them. You make money, sometimes a lot, when you pay back the loan with a stock that has collapsed in value.

Sounds complicated, even if it isn’t. Short selling has been around since we had a stock market. Regulators have traditionally loved short sellers targeting traders who market dubious market fads and unrealistic business models, especially to inexperienced investors.

But in today’s weird stock market, the left and people like him are the bad guys, targets of the FBI’s crackdown on alleged market abuse.

The left’s legal odyssey underscores the dysfunction of the modern stock market that has made and will make small investors the ultimate pocket holders.

For the full story you have to go back to January 2021. COVID was still with us. People were in lockdown mode. Online trading became the bread and circus of the day. New investors needed to research, and looking for tips on which stocks to buy, legions turned to the internet and Reddit chat rooms for clues.

Let’s just say these aren’t the most reliable places to do your market research. They are full of stock hunters looking to make a quick buck. That’s when the madness of crowds began. Shares of troubled companies like GameStop and AMC Theatres, trading under the symbols GME and AMC, were at penny-stock levels, then suddenly exploded on chat room hype.

Average Joe obsession

Small novice investors became obsessed with these meme stocks because they are said to stand for something a meme that can play the average Joe the stock market game and outsmart a pro at a hedge fund. They were unaware of the more nefarious things going on.

At that point it didn’t really matter. The seemingly endless hype drove these stocks so high that it led to what is known as a short squeeze.

Professional traders like Left and others who overweight the GME and AMC market and went short were forced to cover their short positions with huge losses. A hedge fund, Melvin Capital, collapsed during the fight. Left and his hedge fund, Citron Research, which had repeatedly warned that these stocks were trading at insane levels, narrowly escaped a similar fate.

The little man won; it was the shorts that became roadkill.

The triumph of these bogus underdogs will be the subject of an upcoming movie about the meme mania, perversely titled Dumb Money. I haven’t seen it, but a summer feel-good movie that shows meme-loving David killing hedge funds and shorting Goliath stocks could do well in an AMC Theater, even if that’s not how markets work in the long run.

That’s right, the crappy foundations of companies like GME and AMC will always show up over time and they did. So did the end of the Fed’s money printing and government stimulus checks that came on the market. The memefest ended with a thud. Today, GME is down more than 80% from its highs; AMC over 90%.

I’m not sure how the meme movie handles these non-trivial details, but many small investors clung to GME and AMC during this collapse and believed in social media pumping and were crushed. These so-called pocket holders lost generation wealth, according to my report.

A more important question: where is the regulatory crackdown on the meme-stock crackup? Nowhere, as far as I know. In fact, the regulatory attention seems to be on short sellers, the same market people as the Left who warned about the stock-to-stock craze.

The left turns out to be public enemy No. 1 in this bizarre crusade. The FBI raided his house looking for evidence; he has a team of lawyers on standby, even though his warning about the meme stock and much of his other research was incredibly prescient, the file shows.

Maybe the Left has done something really bad. Bloomberg recently did a scary profile of its legal limbo, with the FBI refusing to say if and when they’ll pounce and for what.

If people can’t trade stocks and tweet their opinions, then we’re losing the freedom of speech that is the core of the United States, he tells me.

The bigger problem: The Justice Department and the Securities and Exchange Commission seem oblivious to how markets work. With no short selling and it’s becoming more of a dying art because of what happened with Left, you have a market dominated by the guys in another movie.

That movie was The Wolf of Wall Street, which portrays real-life con artist Jordan Belfort, a stock pumper from another generation who also cost his victims big bucks with false promises of untold riches if they just kept buying and holding penny stocks.

The SEC and DOJ declined to comment.