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Scottish Trader's Tweets Sent Stocks Reeling: SEC

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The Securities and Exchange Commission charged a Scottish trader Thursday with securities fraud for sending false tweets that caused sharp drops in the stock prices of two companies and halted trading in another.

The agency’s Office of Investor Education and Advocacy also released Thursday an investor alert about fraudsters who may attempt to manipulate share prices by using social media to spread false or misleading information about stocks.

Filed in federal court in the Northern District of California, the SEC complaint states that James Alan Craig of Dunragit, Scotland, tweeted “multiple false statements” about the two companies on Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms. 

The U.S. Attorney’s Office for the Northern District of California filed criminal charges the same day against Craig.

Jina Choi, director of the SEC’s San Francisco Regional Office, said in a statement that Craig’s fraudulent tweets “disrupted the markets for two public companies and caused significant financial losses for their investors.” Craig “also said in later tweets that the SEC would have a hard time catching the perpetrator. As today’s enforcement action demonstrates, those tweets turned out to be false as well.”

The SEC’s complaint alleges that Craig’s first false tweets caused one company’s share price to fall 28% before Nasdaq temporarily halted trading. The next day, Craig’s false tweets about a different company caused a 16% decline in that company’s share price. On each occasion, Craig bought and sold shares of the target companies in a largely unsuccessful effort to profit from the sharp price swings.

The SEC’s investigation also determined that Craig later used aliases to tweet “that it would be difficult for the SEC to determine who sent the false tweets because real names weren’t used.”

According to the SEC’s complaint:

On Jan. 29, 2013, Craig used a Twitter account he created to send a series of tweets that falsely said Audience Inc. was under investigation. Craig purposely made the account look like it belonged to the securities research firm Muddy Waters by using the actual firm’s logo and a similar Twitter handle. Audience’s share price plunged and trading was halted before the fraud was revealed and the company’s stock price recovered.

On Jan. 30, 2013, Craig used another Twitter account he created to send tweets that falsely said Sarepta Therapeutics Inc. was under investigation. In this case Craig deliberately made the Twitter account seem like it belonged to the securities research firm Citron Research, again using the real firm’s logo and a similar Twitter handle. Sarepta’s share price dropped 16% before recovering when the fraud was exposed.

The complaint seeks a permanent injunction against future violations, disgorgement and a monetary penalty from Craig. 

— Check out How Advisors Should Explore the Social Media Universe on ThinkAdvisor.