September 28, 2020 BARRON’S 9
ened up after the report. You always
have to take into account that the mar-
ket can be unpredictable. With Nikola,
we recognized that there were a lot of
retail investors buying into a company
with essentially no revenue, and no
salable product. You have to be aware
that it can ultimately go either way,
regardless of how strong your evi-
dence is.
Why do you publicly call out com-
panies in short reports? What’s
Hindenburg’s mission?
The only reason we’re any good at
what we do, is because the team is in-
herently troubled by how broken the
market is and how broken the finan-
cial system is. We want to do our part
and fix it. We want to make a dent. For
us, it’s not just about going deep
enough for a trade, we want to go deep
enough to hit beyond a reasonable
doubt threshold.
We want to identify conflicted and
corrupt sell-side banks that prop up
companies purely because they have a
financial interest. We want to expose
all of the things that enable fraud to
pervade across the financial system.
We view ourselves as investigative
journalists with a different business
model, more than what we’re com-
monly referred to, as just short sellers.
Why do you dispute the short-
seller label?
People don’t really know this, but
we’ve quietly blown up over a half
dozen Ponzi schemes. We have submit-
ted whistleblower filings on over two
dozen private companies, private
funds, and public companies. We just
haven’t published on those. I think it
confuses people because people as-
sume we’re just in it for a trade. We
want to put bad guys in jail. We want
to catalyze legislation that makes mar-
kets more transparent and effective.
Wall Street has come to know you
because of your short research. Do
you make long calls?
We’re both long and short. We just
don’t publish our longs, because they
are pretty run-of-the-mill, with some
diversification. We have some inflation
hedging and things of that nature, like
gold and silver. We also have some
technology companies that we think
are positioned for growth.
What are your returns like?
I’d prefer not to discuss it, but they’re
very good this year.
Can you tell us a bit about how
you’re thinking about the market?
We’re in a market where there’s so
much liquidity sloshing around, and
so much of the retail investment is in
hype-fueled industries, that it has at-
tracted and enriched just about every
stock promoter capable of telling a
basic story.
A lot of this is fueled by never-end-
ing Federal Reserve liquidity. So the
Fed has come in and largely put a bid
under everything. Whenever you print
trillions of dollars of new money, at
any given point there’s a finite number
of Treasury bills and high-quality in-
struments, whether corporate bonds
or stocks, and you can bid up multi-
ples to a certain point. But it seems
that eventually that money flows into
highly speculative names, and what
that’s led to is the Nasdaq ripping past
new highs, behind a lot of money that’s
really going into just about any specu-
lative tech stock with potential. I view
it as a state-sponsored mess of stupid-
ity of sorts.
Why do you think special purpose
acquisition vehicles (SPACs) have
become attractive to investors this
year?
I think the bubble around bankrupt
equities has abated to some extent, but
then the excitement became SPACs,
which prior to this year were consid-
ered one of the least desirable paths to
going public. It’s one with far less
scrutiny than the traditional initial
public offering process, and one rele-
gated to companies that really couldn’t
cut it. When market logic is flipped
completely upside down, why not sud-
denly bid up SPACs for no apparent
reason.
Thanks, Nathan. B
Nikola Short
Says Market
Is ‘Broken’
Of his firm, Hindenburg Research, Nathan Anderson
says: “We view ourselves as investigative journalists.”
N
athan Anderson is an activist investor and the
founder of Hindenburg Research, which has
made headlines for its short call on Nikola.
Since Hindenburg’s 67-page report on Nikola
(ticker: NKLA)—detailing a list of objections it
has to the electric-truck start-up—was released
on Sept. 10, the company’s shares have declined
about 50%. Nikola has said that the report was “designed to
provide a false impression to investors.”
Before starting Hindenburg in 2017, Anderson, 36,
worked at FactSet Research Systems. His five-person firm,
he says, takes pride in exposing inefficiencies in the stock
market. We spoke to Anderson this past week. The inter-
view has been edited for length and clarity.
Barron’s : Will you tell us a bit about how you selected
Nikola as a subject of your research, and a bit more
generally on how Hindenburg arrives at new ideas?
Nathan Anderson: Bloomberg published an article by Ed
Ludlow [on June 17] that identified that the founder had
made false statements about the functionality of a truck.
[The founder told Bloomberg at the time, “I never deceived
anyone.” He has since resigned as executive chairman of
Nikola and says he intends to defend himself against “false
allegations.”] We read that, thought it looked interesting,
and kept it on our radar until we got introduced to an attor-
ney representing some people more familiar with the com-
pany’s business partners and former partners. That’s when
we really started to dig in.
In general, we use some pretty traditional ways of
screening for accounting red flags and the like. We also look
for recidivists, or bad actors in management that have a
history of stock promotion or securities fraud, or being as-
sociated with companies or businesses that have been
charged with securities fraud or other kinds of white-collar
crimes. People are key. And we also get tips from other in-
vestors that have come across something they think is sus-
picious, and they’ll send us information.
Can you tell us about executing the Nikola trade? Was
the stock hard to borrow?
Nikola stock wasn’t particularly hard to borrow, but it tight-
By MAX A. CHERNEY
Photograph by Johnny Milano