Valeant Critic Gets a Taste of His Own Medicine as Attack Misfires

By Michael Rapoport And Julie Steinberg

As short seller Andrew Left is finding, scrutiny can cut both ways.

Mr. Left, who heads the short-selling research firm Citron Research, on Monday offered no new allegations against drug company Valeant Pharmaceuticals International Inc., after Friday hinting he had more accusations to unleash.

Mr. Left has contended the drug company has used its specialty pharmacies to generate phantom sales, an allegation Valeant denies. On Monday, he stood by his previous criticisms and reiterated his skepticism on the future of Valeant's stock. Shares closed the session at $100.47, up about 7% for the day but far from the $146.74 price they were at before his Oct. 21 report.

Mr. Left on Monday suggested that specialty pharmacies could be Valeant's "secret strategic channel" and speculated that they would be used to an improper end, but he didn't present evidence of illegality.

Valeant has said it has found "no evidence whatsoever" of illegal activity but also set up a board committee to look at its relationship, since terminated, with a specialty pharmacy.

Meanwhile, Mr. Left is facing legal action from Hong Kong securities regulators, who allege he published false information about a Chinese property developer in 2012. A Hong Kong tribunal recently dismissed Mr. Left's application to stay the proceedings against him, securities regulators said Monday.

Mr. Left said Monday of the Hong Kong developments that he has "tried and will continue to be respectful to the process during the hearing." He said his actions on Valeant and the Hong Kong issue were "two completely different matters."

"All the information that I printed [in] 2012 was completely true to my best possible knowledge," he added.

The dual cases illustrate the long-running debate about the role in the market of short sellers, who bet on declines in companies' stock prices. Some say they provide a service in bringing forward damaging information about companies that might not otherwise come to light. Others--including many of the companies they target--claim they issue misleading information in attempts to drive down stock prices to benefit themselves.

Mr. Left said in an email he didn't trade in Valeant shares "whatsoever" around his Friday tweet on Valeant. That morning, in a tweet, he said he had a report about Valeant on the way: "Dirtier than anyone has reported!!" it promised in part.

Valeant said in a statement Monday that Citron "admits in its latest report that it has no substantiation for further allegations against Valeant" and that it was "not surprised, even as Citron continues to mislead investors in an attempt to profit by driving down our stock."

Mr. Left still had plenty to say about Valeant's stock Monday, including that he saw it as "uninvestible" because of concerns including heightened scrutiny from auditors and pharmacy-benefit managers and questions about the company's drug-pricing and acquisition strategies.

Goldman Sachs on Monday downgraded its rating on Valeant to "neutral" from "buy," saying the questions around the stock means there is "a much longer road than we previously thought for the dust to settle and for [Valeant] to be able to regain enough investor confidence to attract a sufficient amount of new money into the stock."

In the Hong Kong proceeding, launched in December, Hong Kong's Securities and Futures Commission alleges that a Citron report in June 2012 contained false and misleading information about Evergrande Real Estate Group Ltd. and that Mr. Left sold short 4.1 million Evergrande shares before the report was published. Evergrande's stock fell, and Mr. Left bought back the shares to make a total realized profit of 1.7 million Hong Kong dollars ($219,000), the regulators said. Mr. Left previously confirmed the figures to The Wall Street Journal.

The tribunal also dismissed Mr. Left's application to procure nonpublic documents related to Evergrande's financial position, which Mr. Left argued had to be reviewed to determine whether his report contained false information.

The tribunal's chairman agreed with regulators that the documents were unnecessary because Mr. Left had relied only on public information at the time he wrote his report. Mr. Left on Monday confirmed he relied on public information.

Among other sanctions, the tribunal could require disgorgement and it could prohibit those it deems as having engaged in market misconduct from dealing in securities or serving as a director of a corporation without special permission.

Analysts over the past year have raised concerns about debt levels at Evergrande and some other Chinese property developers.

Evergrande is still in business and has denied the allegations in Mr. Left's report that it was insolvent, among other things. Mr. Left's hearing in front of the Hong Kong tribunal is scheduled to begin in February.

A spokesman for the Securities and Futures Commission declined to comment. An Evergrande representative couldn't be reached for comment.

Write to Michael Rapoport at Michael.Rapoport@wsj.com

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(END) Dow Jones Newswires

November 02, 2015 19:31 ET (00:31 GMT)

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