The argument between a promising software maker for construction firms, Textura Corp., and a short-seller, Andrew Left, has entered a contentious second phase. Retail stock analysts defended the cloud company and characterized Left's recent profanity-laced report, which accuses Textura of fraud, as a gross distortion.

In addition, Textura's top managers expanded on their prepared statement calling claims by Left's firm, Citron Research, which published the report, as unfounded and false. Textura suggests Citron's accusations made in Citron's newsletter and website were designed only to drive down Textura's share price and increase the trade volume in Textura's shares in order for Citron to profit on a short position.

Short-sellers make their money by betting the price of a stock will sink. And 2013's booming stock markets made it "a tough year for short-sellers," says Tom Taulli, a financial journalist and author of a book about short-selling.

Buildup of Short Interest

Patrick Allin, Textura's chief executive officer, said that a large short position of about 3.2 million shares and involving several different short-sellers had built up in the 90 days prior to Christmas. Textura's total float is only about 15 million shares.

"That's a large position to have to close in a relatively short period of time, and we were wondering how that would get done and have the answer to it," Allin said in a phone interview from the company's headquarters in Deerfield, Ill.

"Of course I'm short the stock," said Left, who is based in Beverly Hills, Calif. But that's the only allegation he agreed to, challenging Textura to sue him.

No one is yet characterizing Textura's shares as a long-term value stock, but Textura had one of the most successful initial public offerings during 2013's bull market. Using funds from the $82 million raised in the IPO, Textura paid down debt and is making acquisitions. The day after Left's attack, the company's shares (NYSE: TXTR) fell 17% and were down again on Jan. 7, closing at $28.67.

Despite its growing customer base, Textura also has had big operating losses throughout its 10-year existence, including another loss for fiscal 2013 of $39.6 million on revenue of $35.53 million.

With much capital but no black ink, Textura's leaders stress revenue growth but have yet to prove they are capable of generating steady profit. The firm is small compared to other cloud-computing companies and derives about 60% of its revenue from its payment system, which cuts out the face-to-face meetings and protracted negotiations needed to close out a bank draw. General contractors pay a setup charge for each project. Among Citron's concerns is Textura's customer retention rate, a figure Citron claims Textura declines to disclose.

Retail stock brokerage analysts from Credit Suisse, William Blair & Co. and other firms stood by their previously made recommendations about Textura's shares and sharply denied Citron's accusations.

"The [Citron] report alluded to incorrect innuendo and false assumptions that suggest TXTR management misled investors, which we believe to be untrue," wrote Credit Suisse's Michael Nemeoff. Another analyst says Left's reports have been hit-or-miss in their accuracy.

Says Left about Textura, "If I'm lying, they have $100 million in shareholder money, so come sue me. I will win—and win damages."


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