Research, a Key to Proper Investments

Research is typically viewed as critical to investments and trading. Brokerage firms and investment advisers frequently make substantial investments in the portion of their operations dedicated to conducting proper and complete research for any investments to be made. The results of the research typically guide the ultimate investments. The Commission’s most recent case in this area highlights the impact of failing to properly complete research prior to trading. SEC v. Choi, Civil Action No. 2:24-cv-09082 (C.D. Ca. Filed October 22, 2024).

Named as defendant in the action is Ryan Choi. He holds brokerage licenses and was registered with the State of California as an investment adviser from 2017 through 2018 – just prior to the events in this case. He at times works with Andrew Left, an activist short publisher. Mr. Choi has used the moniker Citron Capital, LLC for years.

Beginning in late October 2019 Mr. Ryan assisted Andrew Left in preparing tweets and reports published through Citron Research by Mr. Left. Citron frequently identified short selling opportunities or those viewed as long investment candidates. The price of the target stock frequently moved in a manner that was consistent with the recommendations.

In December 2020 Mr. Choi worked with Mr. Left on research and content for two buy recommendations. Mr. Left issued the recommendations through Citron Research. Mr. Choi failed to act reasonably in conducting the research or due diligence that was provided to Mr. Left as support for the recommendations he included in the Citron Research tweets, according to the complaint.

Once the investments were made, Mr. Choi quickly traded on price increases that followed after the two transactions. He also traded on price increases without disclosing the basis for his trading. Throughout the process Mr. Choi failed to act reasonably and was negligent. The complaint alleges violations of Securities Act Section 17(a)(3).

To resolve the action, Mr. Choi consented to the entry of a final judgment permanently enjoining him from violating the Section cited in the complaint. The final judgment also requires him to pay a penalty of $115,231, disgorgement of $1,647,217 and prejudgment interest of $64,818. See Lit. Rel. No. 26164 (October 22, 2024).