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). . 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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In the report, Citron said Evergrande was a good opportunity to short sell and that Citron might hold a short position. Please contact customerservices lexology.
Share Facebook Twitter Linked In. At the hearing, Left reargued the point saying that he had been denied a reasonable opportunity of being heard as a result. Potentially and in one sense, s. The Tribunal had no difficulty in grroup that when Mr Left published the Report he consciously disregarded the real risk that the Report, even after his amendments, was false and misleading as to material facts. Yet, Mr Left when conducting his verification exercise, chose not to take the most obvious precaution of seeking expert advice.
Citron Research issued the report. Nor did he approach Evergrande for clarification of those matters. Yet, Mr Left when conducting his verification exercise, chose not to take the most obvious precaution of seeking expert advice.
The Tribunal said that the right of freedom of expression is not an absolute right and referred to journalists as an example. Citron was previously unknown in Hong Kong. Section 1 of the SFO prohibits dissemination of false or misleading information about securities evergfande futures that is likely to induce another person eatate trade in the securities or affect ggroup price of the securities.
Search by first letter of last name. When Mr Left published the Report, was he aware of the risk that the information in question was false or misleading? As the Tribunal emphasised in its ruling, the purpose of s.
Misleading the market: an analysis of the Citron Research case
Did he nevertheless, although aware of a and b above, go ahead and publish it? 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?
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.
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.
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. The MMT imposed on Left orders that:. On 22 June, Evergrande issued a longer announcement rejecting the allegations.
What is perhaps surprising is that Left considered it appropriate to make serious allegations of accounting fraud and insolvency in alarmist terms based on an anonymous unsolicited package of material when he had no knowledge of Hong Kong accounting standards and sought no expert accounting advice.
This was its first report on a Hong Kong listed company. Likely effect on the market The Tribunal made it 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.
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.
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.
Chinese developer Evergrande dives on short-seller report | Reuters
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 standards, these being of some complexity, and in important respects, particular to Hong Kong. Follow Please login to follow content. This is a landmark case, being the first time the Securities and Futures Commission has taken action in respect grlup short evergranfe reports and stock commentaries and the first decision of the Tribunal on the relevant provision.
Andrew Left heads a Los Angeles-based company, Citron Research, which publishes stock cltron on its website. Potentially and in one sense, s.
If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries lexology. 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 standards, these being of some complexity, and in important respects, particular to Hong Groupp.
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. According to Mr Left, he did not take the rexl of the Draft at face value and instead eliminated any information from it that could not be verified by publically available information. The allegations contained in it were direct and combative and of utmost seriousness and, whether on more careful analysis, it proved to have no substance, it must on any initial reading have been a disturbing document and one quite capable — even if over a limited period of time- of having an impact on the market.
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The requisite elements that must be proved are: 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 for the Report. For the same reasons as above, the Tribunal found that Mr Left had been negligent.
Hong Kong October 27 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.