The Securities and Futures Commission (SFC) in Hong Kong has taken action against Citron Research, a firm which has published a short thesis on Chinese developer Evergrande. The watchdog group accuses Citron of purposely making “false and misleading” claims about the developer.

Citron Research accused of misconduct

The Financial Times reports that Citron is the first short-seller to be targeted by the SFC. The group officially filed proceedings alleging market misconduct against Citron chief Andrew Left. The allegations are linked to claims his firm made in June 2012 stating that Evergrande was insolvent and had been presenting false information.

Citron Research

According to the Financial Times, Left sold short 4.1 million shares of Evergrande before making his allegations against the company. He made $219,251 in that transaction, according to the SFC.

In June 2012, Citron reportedly released an extensive report on Evergrande, sending shares spiraling downward by as much as 20%. Evergrande is one of the biggest developers in China and is listed on the Hong Kong Stock Exchange. Before Citron published its report on the company, its market capitalization was approximately $8.6 billion, but after the report, its market cap was $7.6 billion.

Short-sellers face scrutiny in Asia

Regulators in Asia have begun to take particular interest in short-sellers, investigating their claims and methods. Glaucus Research was targeted by regulators in Taiwan earlier this year, and a small hedge fund based in Hong Kong was banned temporarily by Indian regulators for what they said was insider trading.

Citron Research is perhaps best known for its win against Sino-Forest in 2011, which was helped along by fellow short-selling firm Muddy Waters. Since then though, short-sellers haven’t had quite the same level of success. According to the Financial Times, Evergrande was one of the first companies to put forth a strong defense, using language that was similar to what short-sellers were saying about it.

Although the SFC’s power against U.S. citizens is limited, it can block Left from trading in Hong Kong and set other sanctions against him in connection with the Evergrande case. Last year the SFC was able to force two hedge fund managers connected with Tiger Asia who are based in the U.S. to pay HK$45 million after admitting to insider trading in Bank of China and China Construction Bank shares.