The founder of Citron Research was fined HK$1.6 million ($204,580) and hit with a five-year trading ban from a city tribunal in 2016 for questioning the financial soundness of China Evergrande Group years before the developer’s collapse. The verdict came after Hong Kong’s Securities and Futures Commission accused Left of market misconduct and making “reckless” allegations about Evergrande’s accounting and finances in a 2012 research report.

Evergrande has now defaulted on its debt, been ordered into liquidation, and has been accused by China’s securities regulator of vastly inflating its revenue and profits in 2019 and 2020.

“I would like an apology and it would be fair to refund my penalties,” Left said in response to a Bloomberg News inquiry. That “would be a gesture of good faith,” he said. Left added he is not expecting to recover his Evergrande-related legal fees, which totaled more than US$1 million.

A spokesman for the SFC said the regulator had no comment. An Evergrande representative didn’t respond to a text message seeking comment.

Left was among the earliest high-profile critics of Evergrande. His June 2012 report said the developer — then China’s second-largest by sales — used “accounting tricks” and presented fraudulent information to hide the fact that it was insolvent. The report triggered a big stock decline, and Left made a HK$1.6 million profit from his short position on Evergrande that he was forced to disgorge. 

Evergrande at the time decried the allegations as false, and filed a police report against the short-seller. The city’s Market Misconduct Tribunal commenced proceedings against Left in 2014, and banned him from trading Hong Kong securities in 2016. He was also ordered to pay the SFC’s investigation and legal costs. Left appealed the ruling twice, but lost. 

Evergrande’s market capitalization was about $9 billion when Citron published its report on the developer, and soared to more than $50 billion at its peak in 2017. The shares plunged after the developer started having cash flow problems in 2021, and were worth about $275 million before they were suspended from trading last year. 

Last week, the China Securities Regulatory Commission said Evergrande’s main onshore subsidiary, Hengda Real Estate Group, inflated its revenue in 2019 and 2020 by $78 billion by reporting much of its sales in advance. 

Hengda also overstated a total $12.7 billion in profit, or more than three-quarters of its reported income in those years, the CSRC said. That’s about 20 times the inflated profit in Enron Corp.’s 2001 scandal. The inflated numbers enabled Evergrande to report significantly lower liabilities and leverage ratios. 

Chinese regulators blamed Evergrande’s management of the fraud, and have detained its chairman and founder Hui Ka Yan. Regulators are also scrutinizing PricewaterhouseCoopers LLP’s role in Evergrande’s accounting practices, Bloomberg News reported last week. PwC was Evergrande’s auditor for more than a decade until it resigned last year. 

Hong Kong’s financial-reporting watchdog has been investigating PwC since 2021, after the accounting firm failed to identify Evergrande’s inability to operate as a going concern. 

The 53-year-old used to be one of the most active short-sellers on Wall Street. In 2012, after Left targeted Evergrande, a group of 61 Chinese entrepreneurs and executives signed an open letter that accused Citron Research and other short sellers of smearing Chinese companies and taking advantage of an information gap between China and the US. Citron said at the time that the allegations ignored its track record of exposing wrongdoing at both Chinese and US companies. 

Among the targets of roughly 200 reports that Citron has published on US and global companies, about a dozen companies ended up being delisted or filing for bankruptcy, and some of their executives had civil or criminal charges filed against them. 

Left has kept a relatively low profile over the past few years. The US Justice Department and the Securities and Exchange Commission have been investigating the tactics of activist short sellers in a wide-ranging probe that has sent a chill through the industry. Left has deleted social-media posts and turned his focus to his family. 

Left said he is optimistic about China’s future, and thinks the country should turn away from real estate and shift its economic focus back to manufacturing and important technology. 

“Evergrande can be isolated if they treat (it) as such,” Left said. “Punish the executives but at the same time they should praise CEOs and founders of innovative companies.”

Left said country should also incentivize people to invest in the stock market. “China still has one of the highest savings rate in the world yet the stock market is at decades-low multiples. That is because people do no trust the system. That is a problem,” he said. 

Hong Kong’s Hang Seng Index, which is dominated by Chinese companies, is down 2.6% so far in 2024, after ending four consecutive years in the red. It is trading at a price-earnings multiple of 8.67 times, according to data compiled by Bloomberg.

Left said China can become technologically independent from the US by fostering innovation and allowing people to make money legally. “Population decline and unemployment are a problem but the Chinese people are smart, creative, and most of all want the change,” Left said. 

In order for that to happen, the stock market also needs to go higher, he added. “The whole country feels better and people will go back to spending money once the stock market finds a bottom.”