Hedge Funds to Pay $2.25 Million for Failing to Disclose Work With Short Sellers

The Securities and Exchange Commission announced settled charges against hedge funds Anson Funds Management LP and Anson Advisors Inc. for misleading investors about their relationships and arrangements with activist short sellers.

According to the SEC's order, from 2018 through 2023, the private placement memorandum for Anson's flagship fund described its short selling strategy but omitted that the fund worked with activist short publishers who criticized the same companies Anson was betting against.

The order states that Anson at times had agreements to share profits from its short trades with the activist firms in exchange for receiving their bearish research reports in advance of public release. In some cases, Anson collaborated with the activists on drafting the negative reports and tweets. By failing to disclose these practices to investors, the SEC found that Anson rendered the disclosures about its short selling strategy misleading.

The SEC's order also details how in 2018, Anson improperly paid over $1.1 million to one activist short seller through a third-party intermediary by mischaracterizing the payments as compensation for research services that were not actually performed.

To settle the charges, Anson Funds was censured and agreed to pay $1.25 million and cease and desist from further violations. Anson Advisors was censured and will pay a $1 million penalty. Neither firm admitted or denied the findings.

The settlement comes amid increased SEC scrutiny around potentially abusive short selling practices and coordinated campaigns to drive down share prices of targeted companies.

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