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Top short seller Andrew Left from Citron Research facilitated a bear raid led by Tim Sykes and his army of smaller short sellers, and eventually Adam Feuerstein chimed in toward the close.  In 16 minutes the CytoDyn Inc. (OTCMKTS: CYDY) stock dropped from $9.64 to $4.65 losing close to $2.6 billion of market cap.  The trigger appears to have been a tweet from Timothy Sykes at 11:20 which linked to a short report published on the Citron Research website.  No exchange trading halts kicked in during the slide due to volatility because CydoDyn has not quite yet uplisted to a major exchange that has these failsafe’s in place.  The short perpetrators in this heist had to act quickly because there are major regulatory catalysts due within the next two to four weeks that could buoy the stock price and make it much harder to attack.    

Interestingly enough, the hit piece was removed, suggesting culpability.  In its place resides a 404 error, but during the attack there was no link or tweet by Citron from their website or twitter account to access the report.  It’s as though Citron indirectly didn’t want to be overtly tied to the report for fear of a blowback reaction.  On Cytodyn’s website there is an alert that indicates a video release is set for 9:30AM PST.  On social media chat boards it is widely expected that the CEO will speak about this fake news incident and set the record straight.      

About Andrew Left & Citron Research

He is an activist short seller, author and editor of Citron Research.  The website portrays him as a model citizen interested in the truth but it’s clear from his research on CytoDyn it’s about short and distort.  He is hoping to uncover fraud and failing business plans. The company seems to take pride in its regulatory interventions.  It cited 50 companies as targets of regulatory intervention but the list ended in 2008 over a decade ago suggesting a departure from their founding mandate. In a 2012 interview with Business Insider Left boasted 

 I have been sued and NEVER lost a case in the United States….I only tell the truth. We run everything by a team and if we are unsure of it, we don’t publish it.

So much for never losing a case.  In 2014 the National Futures Association said Left was sanctioned for  

“false and misleading statements to cheat, defraud or deceive a customer in violation of NFA compliance rules 2-2(a) and 2-29(a)(1). Left’s conduct was inconsistent with just and equitable principles of trade.”

In a 2016 Market Misconduct Tribunal Andrew Left was banned from trading for 5 years, and had to disgorge profits of HK$1,596.250 from shorting stock. Part of the test they used to convict him was his knowledge, recklessness or negligence.  In this latest attack it seems he had plausible deniability and had no knowledge that this attack was happening because there was zero mention on his website or twitter feed.  It doesn’t take much imagination to figure out how he may have profited since patient zero was Tim Sykes the first to tweet.      

Anatomy of a Bear Raid

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It all started with positioning.  From about 10:45 to 11:20 EST the stock traded in a very tight zone with a lot of accumulation on the offer at 9.83 that just wasn’t moving out of the way of the buying.  CDEL was on the offer constantly taking in the short orders. 

At 11:20 via Twitter Sykes broadcasts a short report on Citron letterhead. This was a 7 page report that apparently got well distributed and digested by people within 14 minutes.  The title of the report was provocative because anyone reading it fast sees SEC and HALT.  The key is what the algorithms that trade these markets saw.  At 11:34 the stock broke the bottom end of its trading range and then started careening south on a noticeable pick up in volume of about 100,000 shares per minute then ramped up to 200,000 shares per minute for the next 10 minutes. At 11:45 the initial short position was complete and the stock had fallen to $7.65 /share.  This triggered massive stop limit orders and lit the algorithms on fire.

The volume reached a climax of 1.29 million shares in a minute and did a v-shaped reversal at 11:53.  During the first 10 minutes of the attack 1.538 million shares traded and 5.59 million shares traded in the ensuing 7 minutes.  The bear raid lasted 17 minutes and traded 7.128 million shares.  This only represents 1.3% of the outstanding shares yet it caused a market cap loss of $2.6 billion. Putting this in perspective 1.3% of the outstanding stock was sold in 17 minutes and it contributed to a 50% decline in the stock price.  During the opening 15 minutes the stock traded about the same volume in a $.50 range.  The key takeaway is that the stock over corrected and is likely to move to equilibrium which is higher. 

In a tweet Sykes indicated the primary short was covered right away, but the follow on army of shorts, legal investigations, and a negative seeking alpha headline announcement kept the price down the rest of the day, but the stock price was able to successfully test support.  On a technical basis the price action was constructive and the stock is poised to bounce higher.  

Upcoming Catalysts

The PDUFA date is due by July 11th and represents a $2.5 billion to $4.0 billion revenue opportunity this year which is why they scaled up manufacturing.  In the month of July those vials that he ordered should start arriving.  Interim clinical trial results from 50 patients in the  phase 3 severe COVID-19 trial should be out within the next 2 weeks.  The Mild to Moderate trial should be completed and ready to be unblinded once all the data is collected.  The COVID-19 opportunity represents $2.5 billion to $9.0 billion in the following year.  The Mexican Memorandum looks very positive and appears to have the least regulatory hurdles to jump over to make it to registration.  The company is also talking to a major distribution partner.  The most unnerving catalyst for the shorts in an uplisting to a major exchange.  The increased liquidity and greater regulatory oversight should make conditions more difficult for shorts to exploit.  

Investor Summary

It’s sad that the SEC does nothing to stem these manipulative practices that are blatantly flaunted in investors’ faces.  The only way to fight them is with truth and knowledge.  The shorts stick to a cookie cutter approach of spooking investors with salacious headlines and then attacking like a pack of wolves over and over again.  As the investor base matures and becomes aware of how the shorts operate they will be less likely to be lured into their trap.  There was no substance to the short report which is just one of the reasons why it was taken down.  This weakness in the stock was contrived and represents a discount to the market price and should quickly be accumulated. There are many catalysts going forward that could make this the next Gilead Sciences (NASDAQ: GILD).  This trading dip should be seized upon because there is nothing fundamentally wrong with the company.

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