The conviction of Andrew Left, the prominent short selling activist and founder of Citron Research, has shaken assumptions in the US market about the line ​between legitimate activism and market manipulation.  It also raises interesting questions about whether similar behaviour would be treated differently under EU rules.

On 1 June 2026, a jury in the Central District of California found Mr Left guilty of one count of employing a scheme to commit securities fraud and twelve counts of securities fraud.  The US Department of Justice presented a case that Mr Left used his public prominence as an activist to issue commentary about the valuation of publicly traded companies while making profitable trades contrary to the positions he presented to the public.

The outcome is an unexpected blow to the dwindling (and fractious) band of US short selling activists, who are reconsidering their strategy in the wake of the verdict.  In the EU, where short selling activism is a more recent (and still growing) phenomenon, it is likely that many of the activities described in the indictment of Mr Left would either be subject to public disclosure or explicitly subject to sanction as prohibited market manipulation.

Regulation of short selling in the EU

The first key difference between the jurisdictions is that in the EU significant net short positions in shares are subject to public disclosure, whereas in the US the obligation in respect of significant short positions is mandatory disclosure to the SEC on a non-public basis.  The EU Short Selling Regulation (Regulation (EU) No 236/2012) obliges investors to publicly disclose a net short position whenever it reaches or falls below 0.5% of the issued share capital of the company concerned and each 0.1% above that figure (the threshold for notification to regulators on a non-public basis starts at 0.1%).

The detail to be disclosed to the public in the EU is limited – no detail on pricing or duration is required.  However, the disclosure must be made public on a per-investor basis, rather than aggregated, which means that the identity of the holder of the net short position will be public information – and changes are to be notified within a very short period.  The deadline for notification is 15.30 on the following trading day – compared to month-end disclosure in the US. (It should be noted in passing, that the UK is due to implement a new short selling regime from 13 July 2026 – this means that, for dual-listed issuers on UK and EEA markets, short position disclosures will need to be made under two different regimes.)

Using figures from the indictment, it appears that the short positions of Mr Left/Citron would have been subject to mandatory public disclosure if they had been EU-listed securities.  Mr Left would also have been obliged to notify publicly shortly after he closed the short positions (i.e. when his position moved below a relevant disclosure threshold).  In the indictment, the DoJ alleged that Mr Left had closed short positions shortly after issuing his commentary, which they stated was intended “to capitalize on the temporary price movement caused by his public statements.”

Prohibition of market manipulation in the EU

One reason for the shock that greeted the verdict in Mr Left’s case arose from the persistent ambiguity as to whether common activist behaviours in the US amount to a “scheme to defraud” or accepted market practice or even protected speech.

“What the SEC and the justice department have a really big problem with is implying you’re doing one thing while you’re doing another,” Jim Chanos, the legendary short seller who famously predicted the downfall of Enron, told the FT. “That’s where you begin to cross lines that get you into legal trouble.”

While enforcement varies across Member States, in the EU there is at least detailed guidance on what amounts to prohibited market manipulation.  The scope of activities that comprise market manipulation under the EU Market Abuse Regulation (“MAR”) (Regulation (EU) No 596/2014) is very broad.  It includes transactions, orders or other behaviour that “gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument …”  It also includes behaviour that affects price through “a fictitious device or any other form of deception or contrivance” and “disseminating information which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument.”

Further guidance on the indicators of market manipulation is set out in Annex I of MAR and Annex II of the supplementing Delegated Regulation (Regulation (EU) 2016/522).  Annex II to the Delegated Regulation sets out an unlikely glossary of indicators of manipulative market behaviour, explicating such practices as “painting the tape”, “wash trades”, “layering”, “spoofing”, “quote stuffing” and “momentum ignition”.  In the case of activist short selling campaigns, the most relevant practice is “trash and cash”, which is the dissemination of misleading negative commentary while taking a short position.  This indicator is specified in the Delegated Regulation as follows:

“Taking of a short position in a financial instrument, related spot commodity contract, or an auctioned product based on emission allowances and then undertaking further selling activity and / or disseminating misleading negative information about the financial instrument, related spot commodity contract, or an auctioned product based on emission allowances with a view to decreasing the price of the financial instrument, related spot commodity contract, or an auctioned product based on emission allowances, by the attraction of other sellers. When the price has fallen, the position held is closed -usually known as ‘trash and cash’”.

With respect to market manipulation, it is irrelevant under MAR whether a market communication takes the form of a research report, blog post, tweet or media appearance.  Similarly, the fact that the person making a communication has a short position and a negative price outlook does not necessarily make the communication abusive.  The key question is whether the communication and the market conduct together are misleading or deceptive with a view to attracting sellers and decreasing the price of the securities.

The penalties for market manipulation are considerable.  In Ireland, breaches of MAR are liable to criminal fines of up to €10,000,000 and/or imprisonment for a term not exceeding 10 years, in addition to civil and administrative sanctions.

Investment recommendations and conflicts

Investment recommendations are also addressed by MAR.  Where a person produces or disseminates investment recommendations or suggests investment strategies, that person is obliged to take reasonable care to present the information objectively and to disclose their interests in or indicate conflicts of interest relating to the financial instruments to which the information relates.

The conflict disclosure obligation has particular importance for short selling campaigns.  It will often be obvious from the context that the publisher has a short position, but other relationships or interests could be material, such as arrangements with hedge funds (such as in the case of Mr Left), competitors or other persons with an interest in the issuer’s share price falling. 

There is no general EU obligation that every person who comments on a listed company must disclose their economic interests in all circumstances. However, where non-disclosure of an interest, relationship or incentive makes the communication misleading, it may become highly relevant under MAR. 

Where regulated firms are involved, MiFID II may also be relevant.  Investment firms are subject to organisational, conflicts, inducement and research requirements.  These requirements will certainly not apply to every activist, but they may be important where the campaign involves brokers, investment firms, fund managers, paid research or other arrangements that affect the independence of the investment research.

Running and resisting short selling campaigns

A key difference between ordinary short selling investing and short selling activism is the disruptive publicity campaign that typically accompanies the latter.  For advocates, short selling campaigns benefit financial markets by disseminating negative information, encouraging discipline in management and financial reporting and accelerating price discovery.  For detractors, especially the issuers that are targets of short selling campaigns, publication of negative information by activists is often undertaken by persons who have no long-term interest in the underlying securities and who intend to close out their positions as soon as the initial impact of their negative commentary impacts the price – i.e. regardless of whether the price ultimately reverses.

For activists, the EU provides a relatively straightforward framework that demands transparency and factual accuracy in conducting short selling campaigns.  As result, the EU activist playbook will focus on compliance with disclosure obligations under the Short Selling Regulation and maintaining records of sources, assumptions, calculations and expert opinions required for verification of each research note and item of commentary with a view to avoiding being characterised as market manipulation.  It appears that the inconsistency between Mr Left’s private communications and Citron’s public commentary were particularly damaging in his jury trial.  Internal communications should be consistent with public messaging and statements about target prices and the activist’s commitment to a position should be carefully drafted with this in mind.

For issuers, the typical playbook to defend against short selling activism will include:

• risk assessment of potential activist lines of attack;
• development of a communication strategy for short- and long-term strategic plans, highlighting progress towards goals via regular announcements;
• outreach to large investors and institutional research analysts;
• preparation of timely and transparent responses to address issues raised in the attack, including prompt correction of false statements and incorrect interpretations where needed; and
• if potential breaches are identified, submissions to competent authorities.

Unlike engagement with long position activists, with whom it is typically prudent to engage, it is usually unwise for boards to engage with short activists, whose sole objective is to destroy shareholder value.  Attention should also be paid to monitoring both traditional and non-traditional investor platforms.  Each of these measures will help undermine the credibility of a short attack if one arises.

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