'Etsy Has Hit A New Low As A Public Company': Why Short Seller Andrew Left Is Sounding Alarm, Sees Trouble Ahead

Short seller Andrew Left issued a new short report on e-commerce platform Etsy Inc (NASDAQ: ETSY) Thursday. Here are the key details.

What Happened: A key figure in the GameStop story that saw retail traders battle with hedge funds and short sellers, Left is the founder of Citron Research.

Left issued a new short report on Etsy Thursday and shared some details on Twitter as to why the e-commerce company could be in trouble.

“Etsy has become one of the largest platforms in the world for counterfeit goods, and it is indisputable.

Citron said Etsy risks trouble with the FTC, DOJ, SEC, Customs and Border Protection and the brands the short seller alleges have trademarks being stolen.

Citron said Etsy may have previously been able to claim that counterfeit products were a small percent of revenue, but that isn’t the case anymore “as the scale has become too large and abusive.”

“The worst part is they have allowed the culprits to buy ‘ad words’ of the brands and then labeled many of these counterfeiters as trusted websites.”

The brands mentioned by Left in the Twitter thread are The Walt Disney Company (NYSE: DIS), Nike Inc (NYSE: NKE) Rolex and LVMH (OTC: LVMUY).

Etsy's Response To Citron: When reached for a comment about the counterfeit allegations, Etsy told Benzinga that it takes intellectual property law seriously and has many safeguards in place. 

"Etsy is proud to be home to millions of unique, handcrafted, and customized goods, and the integrity of our marketplace is critical to our business," an Etsy spokesperson told Benzinga. "We are dedicated to fostering a trusted and safe platform." 

The spokesperson said Etsy has increased investments in tools to protect against counterfeit items and removes listings that violate its policies. 

'New Low As A Public Company': Left said sometimes fraud is “crime right in front of our eyes” and said Etsy management will have more explaining to do on the issue in the future.

A detailed report on the Citron website calls Etsy one of the largest counterfeiting platforms in the world.

“Etsy has hit a new low as a public company. We believe management has knowingly or, at the every least, negligently, turned this company into the largest organized clearing house for counterfeit goods in the world.”

“Recently, Etsy has brought on high powered former DOJ and Meta attorneys to clean things up…but this genie can’t get put back in the bottle.”

Related Link: Cramer's Ecommerce Recommendations Includ 6 Stocks

Why It’s Important: The latest short report from Citron Research comes after Left previously swore off issuing short reports post-GameStop.

Recent targets of Citron Research have included Luminar Technologies (NASDAQ: LAZR) and cryptocurrencies Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH).

The issue of counterfeit goods is not new for e-commerce leaders like eBay and Amazon, according to Citron.

While these e-commerce giants see counterfeit items slip through the cracks, Citron said Etsy is utilizing the sale of ads that could be supporting this business.

“The Etsy site has become a hub of all counterfeit Disney goods with respect to which Etsy collects commission, sells advertising and promotes by the label ‘Star Seller.’”

Citron said it is fair to assume that Etsy knows about the problem and either “turns a blind eye to it, or worse, knowingly, sells advertising and credibility to the violators.”

In the short report, Citron said Etsy would likely say that it has kicked off past users for violations and counterfeit sales are a small portion of its revenue.

“We have no doubt that Etsy is about to face a barrage of bad press that highlights this behavior and compromises the integrity of the platform.”

A Poem For Etsy: Taking things a step further, Citron had ChatGPT write a poem using Etsy and Citron in the style of Shakespeare.

“Hark! Doth mine ears deceive me? Forsooth, ‘tis a tale most foul! Etsy, that once-beloved purveyor of goods crafted by hand, hath fallen from grace and been revealed as a nefarious den of iniquity.” Read the full poem here.

ETSY Price Action: Etsy shares lost 8.4% Thursday, closing at $130.31. 

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