A Canadian hedge fund known for short-selling cannabis stocks has been fined $2.25m by the Securities and Exchange Commission (SEC) after allegedly paying a research firm to produce research about companies it was shorting.
According to the SEC report, Anson Fund Management failed to inform investors of an arrangement it had agreed with a research report publisher.
Anson Advisors and Anson Fund Management reportedly used a Cayman Islands-registered fund, the Anson Investment Management Fund (AIMF) to take short positions in cannabis companies, including marketplace Namaste Technologies (now known as Lifeist Wellness) and India Globalization Capital.
Just after it had secured its short position, the report suggests Anson offered an unnamed research company a percentage of the profits it made on the positions to produce negative reports and social media posts about the companies, thus driving down their share price.
In 2018, AIMF generated around $3.8m in profits from its short position in Namaste, and around $500,000 for its position in India Globalization Capital.
The true nature of the payments to this unnamed publisher, which was paid $1.1m overall, were allegedly omitted, disguised as third-party invoices for non-existent research services. This, according to the SEC, this violated the rules of the Advisers Act.
However, the SEC criticized the fund for omitting crucial details in its communications with prospective investors and for inaccurately recording payments, thus violating the Advisers Act compliance rules.
Anson told MarketWatch in a written statement that the SEC has never accused it of ‘any false or misleading information into the market, engaged in inappropriate trading or in any way breached its fiduciary duty to its investors.’
“Both of the companies in question – Namaste and India Globalization Capital – were ultimately found to be engaging in deceptive business practices, and Anson’s involvement not only benefitted our own investors but also the broader market by exposing these bad actors. Each of these stocks is currently down an average of nearly 100% since this information became public.
“Over the course of our nearly 17 years in business, Anson has always been about doing things the right way while generating outsized returns for our investors – as demonstrated by our net annualized returns of +15.6% since inception and 11.5x increase in NAV over the same period.”