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Etsy shares fall after research firm says platform showcases fake goods

According to Citron Research, Etsy Inc (ETSY.O) has become one of the world's leading marketplaces for counterfeit products, driving shares of the arts and crafts marketplace platform down as high as 8.4% on Thursday.

According to Citron, which built its name in the research sector by calling out weak performers and betting against their stocks, the amount of counterfeit items on Etsy has become too great to justify as a modest fraction of sales.

"Counterfeit items, fraud, and other illicit practices are explicitly prohibited on Etsy," an Etsy spokesperson said in an email, adding that the company had expanded the team dedicated to fighting counterfeits and violations of its policy for handmade goods. Citron alleged that Etsy had allowed sellers on the platform to buy "ad words" of brands and then labeled many of them as trusted websites.

Founded by Andrew Left, Citron said Etsy risked running afoul of the Federal Trade Commission, the Department of Justice, the U.S. Securities and Exchange Commission, and the Customs and Border Protection. Several experts predict a poor Christmas quarter for Etsy as lower-income shoppers cut back on buying home goods, apparel, jewelry, and accessories, which account for around 60% of the company's gross retail value.In November, the e-commerce company reported a third-quarter deficit, it's first in eight quarters, owing to rising shipping costs and a strong currency. After hours, the stock was somewhat lower.