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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Its share price was relatively stable from April to June The Hang Seng Index only fell 1.

On estats JuneEvergrande was the subject of a report issued on the internet at sometime in the morning Hong Kong time. Citron Research issued the report. This is a business name of Andrew Left. Citron was previously unknown in Hong Kong.

This was its first report on a Hong Kong listed company. Around MarchLeft received an anonymous package of material analysing Evergrande. Left reviewed the dvergrande, deleted publicly non-verifiable information using the internet and company filings, updated the numerical information and published it as his report.

He did not seek any expert advice on the accounting standards that applied to Evergrande or approach the company for comment first.

The report quickly became news internationally, being picked up by equity researchers and news services around Later, Evergrande held a telephone conference with analysts again denying the allegations. That day, a number of prominent banks issued reports disagreeing with the Citron report. On 22 June, Evergrande issued a longer announcement rejecting the allegations.

Misleading the market: an analysis of the Citron Research case

In the report, Citron said Evergrande was a good opportunity to short sell and that Citron might hold a short position. Left short sold Evergrande shares from 6 to 19 June. On 21 June, he bought shares to cover his short position. At the hearing, Left reargued the point saying that he had been denied a reasonable opportunity of being heard as a result.


The MMT again rejected this argument for the same reason. Left also argued that negligence should be judged differently for those who did not have a special relationship to the market by being company insiders or analysts, as people outside these categories assumed no duty of care to the market.

He suggested this would better protect freedom of speech. 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. It noted that freedom of speech was not unqualified and the restrictions Section imposed on that freedom proportionately protected legitimate public interests. 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 rely on public information and set out that public information.

The MMT rejected this, ruling it would not protect financial markets sufficiently from false or misleading information. It ruled that whether Left was negligent would be judged by whether Left took the care that a reasonably prudent market commentator or analyst would take.

There was no argument that Left had disseminated information by issuing his report. The report alleged that Evergrande had used off-balance sheet joint ventures to dishonestly substantially under-report its debt.


It ruled that Evergrande had not used trust financing as a means of concealing off-balance sheet debt, rather as a means of financing the ltv of land.

The MMT considered that, as someone who held himself out as an expert in detecting corporate fraud, Left should either have sought expert accounting advice or sought comment from Evergrande, as regulated analysts often do. On 26 Augustthe MMT issued its report finding that Left had engaged in estaet misconduct within Section in that:.

The MMT imposed on Left orders that:. It also rejected that the MMT erred in finding that Left must have known that his allegations required accounting eral. Left has since criticised the MMT decision as an attack on freedom of speech and free flow of information in financial markets.

Chinese developer Evergrande dives on short-seller report | Reuters

But, a review of the decision suggests that it is a cautious consideration of the risk that false or misleading statements about listed companies pose for investors who can be panicked into trading decisions based on the resulting false or misleading information.

The MMT decision was carefully made with an awareness of the need to balance freedom of speech and investor protection. What is perhaps surprising is that Left considered it appropriate to make serious allegations of accounting fraud and insolvency in alarmist terms based evregrande an anonymous unsolicited package of material when he had no knowledge of Hong Kong accounting standards and sought no expert accounting advice.