On some occasions, people with knowledge of its operations said, Anson engaged in a controversial practice of betting that shares of cannabis companies would fall, and later participating in their secondary stock offerings—sales that often trigger price drops. The Globe and Mail reported on the strategy in 2019.
Canadian regulations are looser than those in the U.S., making it easier for investors to legally use discounted shares from such an offering to finish up—or “cover”—earlier short sales, said Paul Davis, a securities lawyer in Toronto who has sought more-stringent rules for short sellers. “We don’t have the outright prohibition that exists in the U.S.,” said Davis, a partner at McMillan. But securities regulators are considering a proposal that would bar such trading, he said.
Investors should still ensure their bets against a stock aren’t based on non-public information about an imminent offering, Davis said. “If you know a financing is coming and then you short—and then know you’re going to participate in secondary financing—that raises several issues,” he said.
Research Feuds
Anson was sued for a different type of bearish bet in 2015. Nobilis Health Corp. accused the firm of a “short attack” based on false information. Nobilis’s chief executive officer at the time, Chris Lloyd, said he personally met with representatives of Anson who expressed interest in investing, according to court records. Several months later, Nobilis was criticized in a blog post written under a nom-de-plume that was eventually tied to Sunny Puri, a portfolio manager at Anson.
In court, Anson defended Puri’s article, saying it was based on public information and discussions with management. Anson even countersued, claiming Nobilis’s response defamed the fund. An online docket for the case shows it has been dormant since 2017, indicating the dispute has been resolved.
Publishing bearish research has become more perilous in recent years as companies take critics to court. In response, some hedge funds have struck up behind-the-scenes relationships with third-party researchers—sometimes paying for insights or commissioning reports. To critics of short sellers, those ties look like conspiracies to drive down stocks, prompting demands for probes.
The Justice Department is now prying into those relationships.
Anson has privately worked with several researchers whose communications have been sought by U.S. investigators, according to people with knowledge of the dealings. They include Citron’s Andrew Left and Spruce Point’s Ben Axler, both of whom declined to comment. Neither has been accused of wrongdoing in the investigation.
One of Anson’s relationships with an independent researcher blew up in court.
A few years ago, Anson sued Robert Doxtator, accusing the one-time ally of defamation, alleging he was behind a flurry of online posts attacking the hedge fund’s trading strategies.
Doxtator denied that and shot back: The fund owed him for giving it a heads-up on a bearish report on General Electric Co. in 2019. On Aug. 15 of that year, famed market investigator Harry Markopolos published research on the conglomerate that caused the share price to drop. In court records, Anson said it received “GE Diligence” from Doxtator at about that time and placed profitable bets the stock would fall.