Trustpilot shares plummet after short seller alleges ‘mafia-style’ practices

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Shares in Trustpilot dropped nearly 32 per cent after US short seller Grizzly Research alleged that the online review site hosted ‘mafia-style’ campaigns that pressured businesses into buying subscriptions to improve their ratings.

US-based Grizzly, which also opened a short position on Wednesday, published a 43-page report on Thursday, claiming that reviews had climbed from two out of five stars to more than four for businesses that had taken out Trustpilot subscriptions.

Grizzly alleged that negative reviews for subscribing companies were removed or spuriously challenged, adding that “countless, obviously fake, positive reviews and reviewers for paying companies” were included.

“Trustpilot is either doing a very bad job at policing their website or is wilfully negligent when convenient,” the report said.

Trustpilot shares dropped 31.4 per cent to 130.1p in London trading on Thursday following the report’s publication.

Short sellers profit by borrowing shares and then selling them, in the hope that the price will drop so they can buy them back cheaper to then return to their owner.

Trustpilot’s share price fall was one of the most precipitous following a report by the US group, which was founded by Siegfried Eggert in 2020, a German national based in the US.

Grizzly has opened eight other positions this year, including ones against German food delivery group Hello Fresh, US aerospace group Archer Aviation and US thermal energy turned bitcoin purchaser KULR Technology.

One target, Brazilian fintech XP, filed a lawsuit in the US in July accusing Grizzly of false and defamatory statements when it accused XP of operating a “Madoff-like Ponzi scheme.” Last month, Grizzly said it stood behind its report and its accuracy.

The short position, equivalent to just under 0.6 per cent of the Trustpilot’s market capitalisation, netted Grizzly just over £1mn on Thursday, according to calculations from data provider Breakout Point.

“Grizzly basically left a one-star rating, and the market reacted like it fully agreed with the reviewer”, said Ivan Ćosović, founder of data group Breakout Point.

Copenhagen-based Trustpilot makes its money from selling companies a way to monitor and interact with their customers’ reviews on its site. Trustpilot said in a statement to the market that the claims in the Grizzly report were “selective, misleading and framed to support a pre-determined narrative.”

Grizzly also omitted context and publicly available facts. “Trust is our guiding principle and is central to everything we do,” it added.

Roger Phillips, a software analyst at Investec, said there “is nothing here worth addressing” in the report.

For the short attack to have real teeth, a report needed to prove that Trustpilot was generating fake reviews itself or that the quantity of fake reviews has risen to a point that called the integrity of Trustpilot’s content into question, he explained.

He added: “We see nothing in the short reports on these two points”.