Nathan Anderson made his name exposing — and betting against — corporate fraud. But short selling in a frothy pandemic economy can be ruinous. riceid reports
Nathan Anderson. Photo: Philip Montgomery One day, a man with dreams of riches placed a truck on top of a hill. The vehicle was a big white tractor-trailer, a prototype built by an automotive start-up called Nikola. The company’s boastful founder, Trevor Milton, claimed it was the “holy grail” of the commercial-trucking industry, a semi that ran on hydrogen and was both green and powerful, capable of doing thousand-mile hauls with zero carbon emissions. In reality, the truck had no engine.
Anderson belongs to a cranky cohort of “activist” short sellers. They make money by taking positions in the stocks of shaky or shady companies, which pay off if the price goes down — an outcome the shorts hasten with public attacks, publishing investigations on their web platforms and blasting away at their targets on Twitter.
Although those bets paid off well and Anderson says he’s “been able to make a very good living,” he’s still a small fry by Wall Street standards. He doesn’t manage a fund. He probably could be making more money trading muni bonds. But he’s had a lot more fun on his finance-world capers. Anderson has smoked out scammy cannabis operations. He has investigated alleged ties between a Colombian drug cartel and the owners of a glass company profiting from Miami’s pandemic building boom.
Anderson, wearing a dark T-shirt, jeans, and polka-dot socks, was fiddling with the wording of a new post to the Hindenburg website. Another researcher was nearby, one of eight full- and part-time employees who work for him. Besides serving as Hindenburg’s headquarters, the apartment is a storage space for three bicycles that belong to him, his fiancée, and his daughter.
Anderson said he was anticipating an uproar on Twitter. “It’s going to be an absolute disaster,” he predicted with a note of relish. Sure enough, while the bounty has so far yielded no actionable information, it did trigger a vociferous response from Tether Holdings, which issued a statement calling it a “pathetic” attempt “to discredit not just Tether, but an entire movement.
Under the SEC program, whistleblowers are eligible for a cut of up to 30 percent of any fines collected as a result of information they provide, which can amount to millions of dollars. But Anderson soon discovered that the SEC works at an inching pace. Anderson was now operating a small brokerage and a software firm that offered due-diligence services to hedge funds. He struggled to make a living. In 2017, his landlord filed suit to evict him from his Inwood apartment.
Anderson’s analysis was sound, but no one was listening. He recalls that beneath one blog post about his report, a commenter wrote, “Who cares if it’s a scam? It’s blockchain, it’s going up.” Their departure has opened the field to smaller predators with names like Scorpion Capital and Wolfpack Research. Rather than shorting stocks simply because they are overvalued, they focus on rooting out corporate wrongdoing. The model is not new. In its modern incarnation, it traces back at least three decades to Jim Chanos, the legendary founder of the fund Kynikos Associates.
There is little doubt that short researchers often have undisclosed relationships with interested parties — for example, angry ex-employees looking to take down their old firm. In one high-profile case this past summer, a researcher was compelled by litigation to admit that, in collaboration with a Dallas-based hedge fund, he had published an error-filled report that temporarily tanked a stock.
From the beginning, Anderson has been defending Hindenburg against accusations of stock manipulation. His very first report, which identified fishy transactions at a publicly listed Bollywood production company called Eros International, led to a defamation lawsuit. Eros alleged that Hindenburg and a cabal of other short sellers were victimizing the company in a “short and distort” scheme. The lawsuit quickly revealed that Anderson was the man behind Hindenburg, but it was ultimately dismissed.
But then it did work. The federal government opened its macroeconomic sluices, printing trillions of dollars. The stock indexes stabilized and before long were ascending past their previous highs. Newbie investors, killing time during the lockdown, started playing with stocks on apps like Robinhood. “Getting the impression that a large portion of those stimulus checks went straight into Robinhood accounts to buy YOLO calls,” Anderson tweeted incredulously that April.
Milton had promised to revolutionize the carbon-spewing trucking industry by making hydrogen-fuel-cell vehicles that were as powerful as big diesel rigs, capable of hauling “80,000 pounds more than 1,000 miles” without stopping to refuel. An impressive roster of investors had bought into his vision.
It was around this time that Anderson talked with Mark Pugsley, an attorney he knew in Utah who specializes in representing whistleblowers. Pugsley told Anderson that he represented three people who were preparing to file a whistleblowing complaint against Nikola with the SEC. Milton “had left a trail of people in his wake who he had just screwed over,” Pugsley says. He wouldn’t identify his clients to me by name, but he says they were familiar with Nikola and its technology.
The pièce de résistance, though, was the video of the rolling truck. The company had shot the commercial in cooperation with one of its parts suppliers, and it was Milton who had insisted that it show the Nikola One “in motion,” company executives later told a law firm that conducted an internal investigation. Some insiders insist this was a common automotive-industry practice. But Anderson immediately recognized the potency of the anecdote. “The truck had zero horsepower,” he says.
Two days later, Hindenburg published. Pugsley and his clients were waiting, tracking Nikola’s stock chart on their web browsers. They cheered as the line plunged. “It was a blast,” Pugsley says. “It was just a very rewarding experience to watch it come out and watch the stock tank.”
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