US government ends probes into Muddy Waters' Carson Block, sources say

By Svea Herbst-Bayliss and Chris Prentice

NEW YORK (Reuters) - U.S. authorities have told Carson Block that they have ended their civil and criminal investigations into the short seller’s activities without taking any action, according to two sources familiar with the matter.

Block, whose Muddy Waters Research rose to fame by uncovering fraud at Chinese companies, received a search warrant and subpoenas in 2021 as part of a sweeping U.S. government probe into potential coordinated market manipulation by activist short sellers and hedge funds.

The U.S. Department of Justice and the Securities and Exchange Commission opened the probe several years ago.

Justice Department prosecutors recently told Block's attorneys that they were not taking further action, the two sources said, speaking on condition of anonymity.

Separately, the SEC sent Block a letter in recent days, saying it, too, had closed its investigation, one of the sources said.

Spokespeople for the DOJ and SEC declined to comment.

Short sellers borrow shares in the hope they can buy them back and return them after a company's stock price has fallen, pocketing the difference. Activist short sellers typically publicize their research and theses.

The government probe into their activities led the SEC and the Justice Department to charge Andrew Left, another prominent activist short seller, with market manipulation and fraud late last month. Left has pleaded not guilty.

The closing of the SEC's case against Block was first reported by Institutional Investor on Wednesday.

(Reporting by Chris Prentice and Svea Herbst-Bayliss; editing by Paritosh Bansal, Michelle Price and Jonathan Oatis)