A Skeptical Stock Analyst Wins Big By Searching For Fraud


Last month, federal officials accused the founder of electric vehicle maker Nikola, which went public in the summer of 2020, of defrauding investors. They were directed there, in part by the work of a little-known Wall Streeter named Nathan Anderson.

Anderson, a stock researcher and investor, and his startup Hindenburg Research are having a moment. Earlier in August, the Securities and Exchange Commission sent a subpoena to sports betting firm DraftKings. Hindenburg He said in his June report that he potentially enabled black market betting. and shares Lordstown Engines It’s fallen nearly 70 percent since Hindenburg said in March that the electric truck maker had increased commercial interest in its vehicle. Federal officials are investigating Lordstown’s allegations.

Named after the German airship that exploded in 1937, Mr. Anderson’s five-person firm is a novice in the world of finance. Founded in 2017, Hindenburg specializes in publishing detailed reports on publicly traded companies, poking holes in their stories and alerting investors to potential abuses. The boom in special purpose purchasing companies gave Hindenburg fertile ground.

This is not a public service act. Hindenburg, who has the backing of several investors, is also making financial bets that the stocks of companies Mr. Anderson targets will fall after the firm publishes its research. When stocks fall, the Hindenburg trades its money in what’s called a “short” trade.

“He’s become a real giant killer,” said Frank Partnoy, a former derivatives trader who is now a professor of securities law at the University of California, Berkeley, School of Law. “He seems fearless even when pursuing some of the biggest corporate goals.”

Mr. Anderson has emerged as the newest face of a small club of investors called activist short sellers – a style of investing popularized by Carson Block of Muddy Waters and Andrew Left of Citron Research. Such investors are often despised by companies for their belligerent tactics. ordinary investors I hate them because their investment could suffer. Short sellers see themselves as financial detectives sniffing out corporate inaccuracies or inflated stock prices. Some, like Mr. Anderson, publish critical reports on companies and then broadcast their opinions widely on social and news media to drive down the stock price.

At the same time, by borrowing and selling shares of a target company from a brokerage firm, they create a short position in the stock, thinking that the stock price will fall due to their negative research. If the stock falls, the short seller buys back the now cheaper stock, returns it to the broker, and pockets the difference. But the strategy can be risky because the stock could rise instead.

Shares of the company fell 15 percent on July 29 when federal officials announced they had accused Nikola’s Trevor Milton of securities fraud. Mr. Anderson couldn’t resist taking an online victory lap. The government’s actions were “proof of the role of short sellers and critical researchers” in promoting a well-functioning stock market. wrote on Twitter.

In a recent interview, Mr. Anderson said he felt he was right. “But more than that, I’m glad we’re starting to make a dent in the real world,” he added. “The job would be much less satisfying if the only effect were stock prices moving.”

Mr. Anderson, 37, is the son of a university professor and a nurse who grew up in a small town in rural Connecticut and holds a business degree from the University of Connecticut. During college, she lived for a time in Israel and worked as a paramedic while taking classes at the Hebrew University.

After college, Mr. Anderson took a job providing sales and technical advice to corporate clients of FactSet, a financial analysis company. Later wealthy families had a job auditing and validating potential deals for investment firms.

But he said his passion was “finding fraud”. He spent hours of his time investigating potential Ponzi schemes by hedge funds, and occasionally worked with fraud investigator Harry Markopolos, who in 2000 tried to badly warn the SEC of misconduct at Bernard Madoff’s firm. When Mr. Anderson founded a small brokerage firm he founded to provide due diligence services for hedge funds, he sold his brokerage license and founded Hindenburg.

“I didn’t plan it that way,” said Mr Anderson. “I had no expectation of a career that I could pursue other than looking for ponzi schemes. It was a side hobby that my employers were sometimes uncomfortable with.”

Working at a WeWork office in Midtown Manhattan, Mr. Anderson focused on revealing shares of lesser-known companies. He desperately needed a win. Debts were piling up and he was in danger of being evicted from the Manhattan apartment he shared with his now fiancée girlfriend. His lucky break came in December 2018 when he wrote a letter. statement with a hedge fund at the medical cannabis company Aphria. Insiders are using shell companies to “steer money from shareholders into their own pockets,” Hindenburg said.

Aphria shares fell 30 percent soon after the report was published. The profit from the short bet allowed Mr. Anderson to stay in his apartment. Mr Anderson, who has a young daughter, said that if the bet had failed, he might have had to find a “real job” with a reliable income.

Today, Hindenburg employs a mix of ex-journalists, including Bloomberg and CNN, and analysts, all of whom work remotely during the pandemic. It can take six months or more for the firm to produce a finished investigative report, which requires reviewing public records, speaking with company employees, and searching internal corporate documents. About 10 deep-pocketed investors finance some of the firm’s operations, and some are making their own short bets with Hindenburg. Mr. Anderson declined to reveal the names of his investors.

“It has become a successful venture,” he said of his firm. “But it was very difficult to realize early on that something was going to emerge.”

The boom in SPAC deals—such companies have raised nearly $200 billion since the start of 2020—provided rich material for Hindenburg’s research. A SPAC, sometimes called a “blank check” company, raises money from investors through an IPO and has two years to find a business entity to merge. Many companies that go public this way are subject to much less scrutiny than they do in initial public offerings.

Last summer, two whistleblowers tipped Hindenburg about electric truck maker Nikola, which went public in June 2020 through a $700 million merger with a special-purpose buyout company called VectorIQ.

Informants, former business associates of Nikola’s chairman, Mr. Milton, claimed that Nikola made exaggerated statements about the company. A few months later, Hindenburg published his article. statementdescribes Nikola as “a complex fraud based on dozens of lies.” According to the report, Nikola released a promotional video to suggest he had a working prototype for his truck – without explaining that the truck was only moving because it rolled down a hill in neutral gear. Mr. Milton resigned a few weeks later and authorities began investigating.

Mr. Milton’s lawyers denied the charges and the company said it was cooperating with authorities. In announcing the SEC subpoena, DraftKings said it would cooperate with the investigation.

“Nate is killing him right now,” said Mr. Blok of Muddy Waters. He added that Hindenburg found issues with Nikola that his own firm had sought and missed.

“You have to really admire his perseverance to keep his head down, keep pushing, keep learning, get better, and he really succeeded – I think a year ago -” said Mr. Block. “And he did it with Nikola.”

Mr. Anderson did not reveal how much money Hindenburg made from the short bet on Nikola, but said it was the biggest win for his firm to date and remains his largest open position.

The big splash of the Nikola report led Hindenburg to another fledgling electric vehicle company: Lordstown Motors. Lordstown was also planning to go public through a SPAC, drawing the attention of former President Donald J. Trump, as well as General Motors, which had previously sold the company its assembly plant in Lordstown, Ohio.

Mr Anderson and his team said Lordstown had made overly optimistic claims, including statements from founder and CEO Steve Burns that the company had received 100,000 expressions of interest from commercial buyers for its electric pickup truck, which has yet to come out of assembly. liner.

In a report in March, Hindenburg highlighted the speculative nature of many of Lordstown’s production claims. In June, Mr. Burns left Lordstown with other members of the management team. At about the same time, company He said he desperately needed money to survive and manufacture his first vehicle.

“There are so many ugly companies,” said Mr. Anderson. “Some of these companies we’re looking at have no income at all.”





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