When activist short seller Nate Anderson announced he was dissolving his firm, Hindenburg Research, just five days before the second inauguration of President Donald Trump, even the most hard-boiled of his peers were stunned. In recent years, Anderson had burst onto the scene with short reports taking down a slew of high-profile targets, including one of the richest men in the world, India’s Gautum Adani and his massive company, Adani Group.
If Trump’s victory helped convince Anderson it was time to bow out, he’s not saying. In a public note announcing his decision, Anderson said that there was not “one specific thing — no particular threat, no health issue, and no big personal issue” that led him to wind down Hindenburg. He declined to comment for this story.
Yet until Anderson called it quits, Hindenburg’s ability to rattle markets had seemed a testament to the staying power of short selling at a time when that business has been under siege, by both a raging bull market and a widespread investigation of short selling that led to a federal criminal indictment last year of one of its most vocal and longstanding practitioners, Citron Research founder Andrew Left.
Now Anderson’s exit is another marker in the waning world of short selling, which has dwindled in size and importance ever since the financial crisis temporarily boosted its fortunes — and image — with the so-called “big short” more than 15 years ago.
Anderson’s decision also raises the question of how the shorts will fare in the new world of the Trump administration — and whether more will quit a business that is known for what former short seller Bill Ackman called “brain damage.”
Short sellers are skeptical the Securities and Exchange Commission and the Department of Justice under Trump will go after the types of fraud that they excel in exposing. There are already reports that the SEC’s enforcement arm is under siege. For example, investigations will have to be approved by the Republican-dominated commissioners, according to a report in Reuters.
Trump and his right-hand man, Elon Musk, have both been vociferous critics of short sellers. For years, Musk taunted the short-sellers of Tesla, including Greenlight Capital’s David Einhorn, whom Musk sent red boxer shorts as a taunt, and veteran short seller Jim Chanos. Chanos shut down his Kynikos hedge fund in 2024 after years of losses, including his bets against Tesla.
When the stock of Trump’s social media company, Trump Media & Technology Group, fell in price last year, Trump blamed the decline on “naked short sellers,” a common refrain of the business’s critics. The stock rallied after the election, then fell again shortly afterwards. “If DJT [the company’s stock ticker] continues to go down, does that result in real headaches for short sellers?” asked Muddy Waters CEO Carson Block, an outspoken activist short seller who endured an SEC and DOJ probe into his business that was finally dropped last year.
Under the chairmanship of Gary Gensler, the SEC pursued an aggressive enforcement agenda, some of it focused on special purpose acquisition companies — a favorite target of short sellers in recent years — and crypto businesses. The numbers speak for themselves. In mid-December, the SEC said it filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history. Shortly after the election, the SEC (with the DOJ) filed one of its biggest cases, which leveled bribery charges against Adani and executives of the Adani Group.
But Trump’s nominee for SEC Chairman, Paul Atkins, is known for favoring a light touch to regulation, going back to his role as an SEC Commissioner under President George W. Bush during the heady days of deregulation. Law firm Jones Day, which was close to Trump during his first term, wrote on its website that “SEC enforcement will not be idle, but its focus is likely to move toward traditional enforcement priorities like retail investor protection, Ponzi schemes, and insider trading.”
The SEC also is unlikely to be spared from the administration’s plan to slash the size of the federal government. Already a 50-person crypto enforcement unit has been scaled back, according to the New York Times.
“You can certainly expect that the SEC is in the crosshairs,” said one individual close to the agency who added it is “widely expected that Trump will stack the SEC with five commissioners and no Democrats, breaking from the norms of having two minority party commissioners chosen by the Senate leader of the opposition party.
This individual pointed to the successful lobbying effort by the crypto industry to tank the reappointment of Commissioner Caroline Crenshaw [a Democratic appointment]. “Even if she succeeded, she would not be able to sway any voting outcomes, yet an effort was made to prevent her from getting a new term,” he said.
“This certainly is not the administration in which you’d expect to see enforcement against companies,” said Block, who has long been critical of regulators for not going after more corporate securities fraud.
Others are a bit more sanguine. “On the margin maybe SEC does prosecute less,” acknowledges another industry veteran. During the first Trump administration, he said, “it’s not like they halted securities enforcement entirely. But it slowed down.”
One thing that may change is the SEC’s whistleblower bounty program, which was created under the Dodd-Frank legislation after the SEC ignored whistleblower Harry Markopolos, who famously tried to warn the agency that Bernie Madoff was running a ponzi scheme in the years leading up to the financial crisis.
Since the program’s creation in 2010, short sellers have become major whistleblowers, typically submitting their research reports on companies they suspect of fraud. The program paid nearly $300 million to activist short sellers and other “outsider” tipsters since its creation, according to a 2024 report by University of Kansas Law School professor Alexander Platt. He estimated that they received more than a third of all the awards, or about 40 percent of the funds disbursed by the SEC.
In addition to hostility to short sellers in general — as evidenced by the recent widespread probe — Republican have no love for the whistleblower program. During Trump’s first term, the SEC amended the rules that resulted in a decrease in the size and number of whistleblower awards it issues.
But just before Biden came into office in 2021, Jordan Thomas, a former SEC assistant director and top whistleblower lawyer, sued the agency to vacate the rule changes, saying they undermined the integrity and effectiveness of the program, which he had helped develop. At the time, Thomas called the new rules Chairman Jay Clayton’s “parting gift to Wall Street — his former and future employers.”
After Democrats took control of the SEC, it suspended the enforcement of the two contested rule amendments — which Thomas called poison pills. Notably, the two Republicans commissioners disagreed with the decision, and both of them will continue as commissioners under Trump.
“There is always a risk that Trump 2.0 will make another run at the program,” said a lawyer familiar with Thomas’s case. (Thomas declined to comment.)
Whatever happens to the program, SEC’s “lighter touch” on enforcement under Atkins will filter down to people’s decisions about whether it’s worth their time to submit tips, said Platt. Already, whistleblower lawyers are reluctant to file reports, saying the SEC has “no appetite” for some of them, according to one activist short seller.
Musk’s DOGE could even decide to fire SEC enforcement attorneys and outsource the business to private actors, primarily short sellers, using the whistleblower award to pay for the work, said Platt. (Short sellers pointed out that ignores the way the SEC works: Private actors do not have subpoena power.)
At the same time, Platt has questioned whether short sellers, who are profiting off their trading, should also receive whistleblower awards on top of that, saying they are “double dipping.” (He named his report “The Short Seller Enrichment Commission?”, a reference to a 2018 Musk tweet that used the term to describe the SEC.
Short sellers typically make a whistleblower filing based on the reports they write. And in some cases, the award could be greater than what they make trading the stock, said the founder of Fuzzy Panda, a pseudonymous activist short seller that has filed 10 whistleblower reports with the SEC over the past five years.
The largest known award went to Muddy Waters, a $14 million bounty for bringing the fraud of Focus Media to light in 2011. Hindenburg was also known for close relationships with regulators, and its website claims that investigations by the firm and Anderson “have preceded SEC fraud charges against 65 individuals.”
As a whistleblower, Fuzzy Panda’s founder explained that his firm typically does “extra work” for regulators, including explaining details. “People wouldn’t do the same thing if there is not the incentive to do it. Our lawyers wouldn’t be writing up the reports,” and the SEC would end up with less information, he said.
In spite of these headwinds — or even because of them — short sellers say this may be the best time to be a short seller. “The market is rife with fraud and stocks that are totally disconnected from any sense of rational valuation,” said the industry veteran. “There is overwhelmingly more supply of fraud than short sellers to call it out.” However, he admitted that “the most fraud-friendly environments are the harshest towards critics. Being a short seller is rarely popular but is perhaps least popular when the market is smack in the middle of peak euphoria.”
Even if the pressure on short sellers increases, several told Institutional Investor that they will continue to ply their trade. However, the short sellers plan to steer clear companies with a Trump connection.“Imagine you published something erroneous about a Trump-connected company. Your life is probably over,” quipped a short seller.
Axos Financial is a small bank known to have ties to Trump. Bloomberg described Axos in an April 2024 profile as “Donald Trump’s lender of last resort” after the Jan. 6 riots led others to shy away from Trump — at least until he was re-elected.
In its Axos short report on June 4, 2024, Hindenburg did not mention the Trump connection but said that the company was “exposed to the riskiest asset classes with lax underwriting standards and a loan book filled with multiple glaring problems.” Axos called the report “incomplete and misleading” and the market shrugged it off, making that stock the worst performer for Hindenburg over the eight years of the research firm’s existence. Axos shares have gained almost 40 percent since then — and soared immediately following last year’s election.
