Carson Block’s latest short target is a Columbia law professor

A federal criminal investigation into short sellers has spawned a behind-the-scenes feud between a law professor whose research helps guide prosecutors and one of the most high-profile investors.

Carson Block, known for his public attacks on companies he suspects of fraud, has led a campaign to discredit Joshua Mitts, a Columbia University law professor who helped the US Department of Justice in its investigation for Determine if short sellers are using illegal trading tactics to drive stock prices down.

Prosecutors subpoenaed the business records and electronic communications of several hedge funds, and FBI agents seized Mr. Block’s phone in October, The Wall Street Journal reported.

Since then, Mr. Block, the founder of Muddy Waters LLC, has publicly accused Mr. Mitts of academic shortcomings, privately urged Columbia to investigate him, and challenged the professor’s findings in his own research paper. It’s a tactic from Mr. Block’s investment playbook: launch an attack highlighting alleged corporate wrongdoing, ask regulators – in this case, Mr. Mitts’ bosses of Columbia – to take note of it and see if any of the complaints hold.

Mr. Block wrote to Columbia’s human resources manager last month urging the school to investigate Mr. Mitts’ research, as well as his work as a paid consultant for companies targeted by short sellers.

Columbia law professor Joshua Mitts researched whether short sellers use illegal trading tactics to drive down stock prices.


Photo:

document / Reuters

In the letter, seen by the Journal, he attacked an article Mr Mitts wrote in 2018, which found that bearish posts on the Seeking Alpha investor website were often accompanied by unusual trading activity. The document helped guide prosecutors in their investigation, the Journal reported.

Mr. Mitts’ research “lacks academic integrity and is utterly false,” Mr. Block wrote. He also said that Mr. Mitts’ consulting work could violate the university’s ethics policies.

It is common for business and law professors from prestigious universities to advise companies or government groups, often charging hundreds of dollars an hour for their expertise. Columbia allows faculty to dedicate up to one day per week to outside consulting projects.

MM. Mitts and Block declined to comment.

A Columbia spokesperson declined to comment on the matter. He said the school “recognizes the importance of relationships between scholars and external entities, and seeks to encourage such relationships, but also has rigorous standards and policies on conflicts of interest.”

Mr. Block published his own analysis of Seeking Alpha’s posts last month, challenging Mr. Mitts’ findings. He said most of the declines in stock prices could be explained by poor earnings announcements; that Mr. Mitts designed his outcome to focus only on large companies; and that the vast majority of article authors did not say they were short of action. The website requires commenters to declare if they are short on action.

Disagreements over research are not uncommon in academia and petty snipers can escalate into public rebukes, but behind-the-scenes lobbying by outsiders is unusual. Whether or not Columbia acts on its complaint, Mr. Block risks inflaming prosecutors by attacking their expert witness.

Mr. Mitts is nominated for next month, and Mr. Block seems determined to make sure he doesn’t get it.

In addition to the formal request to Columbia, Mr. Block sent an email last month to John Coffee, a tenured professor who has taught at Columbia Law School since 1980. He called Mr. Mitts’ research “purely misleading and misleading” and attacked his work. for companies targeted by short sellers.

“You have been brought in to help him with his campaign which serves the interests of his clients,” Mr Block wrote in the email.

“I don’t think you’re an impostor and I like what you’ve done,” Mr. Coffee replied, citing Mr. Block’s work exposing the accounting problems of a Chinese coffee chain. “I also don’t think Joshua is an impostor. Maybe I’m just soft-headed.

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In an interview, Mr. Coffee called Mr. Mitts “one of the best young scholars in the country” and his case for tenure was strong. He also praised Mr. Block as “an entrepreneur par excellence”.

“They’re both talented people,” he said, “but now they’re like the Capulets and the Montagues.”

The two men were once friends, at least professionally. In 2019, Mr. Block visited Mr. Mitts’ class at Columbia, where he spoke admiringly of the professor’s work, according to correspondence between the two seen by the Journal. They discussed co-authoring an article on short selling, agreeing it was key to tackling corporate fraud and raising concerns about the possibility of manipulative trading.

A few months later, Mr. Mitts was hired by a British asset manager, Burford Capital,

after Mr. Block accused him of questionable bookkeeping. The case eventually ended up in a UK court, where a judge was unswayed by Mr Mitts’ decision. claims that suspicious transactions at the time of the report caused the company’s share price to plummet.

Eric Talley, another Columbia Law School professor specializing in corporate law and finance, jumped into the debate last week by publishing a short article concluding that Mr. Mitts’ research on the price movements of shares sold short were based on solid theoretical foundations.

“My interest in it was kind of like a boring academic,” Mr. Talley said.

In his article, Mr. Talley said he did not weigh in on Mr. Block’s other criticisms of Mr. Mitts and his work. However, he wrote, Mr. Block’s “more ‘colorful’ claims – entertaining as they are – do little to clarify (and much to obscure) the real academic discourse”.

Write to Liz Hoffman at liz.hoffman@wsj.com and Melissa Korn at Melissa.Korn@wsj.com

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