“What could you arrest them for?” asked the Scottish tweeter who just made $97 total manipulating two stocks. “@dunragit are you serious? Did you read my post? It’s called securities fraud.” It would be difficult to find the people since they did not use their real name replied the Scottish tweeter. Not so much. SEC v. Craig, Civil Action No. 3:15-cv-05076 (N.D. Cal. Filed Nov. 5, 2015).
James Craig resides in Dumfries & Galloway, Scotland. He is an active trader of equities and options. He also comments on stocks through various Twitter handles he created including @dunragit and @HedgeyeAC.
On January 25, 2013 Mr. Craig created a Twitter account with the handle @Mud 1 waters. The Twitter page resembled that of equity research firm Muddy Waters and listed the name “Conrad Block” – the founder of the research firm is “Carson Block.” Its actual Twitter account is @muddywatersre.
Four days later Mr. Craig created a second Twitter account. This time the account emulated equity research firm Citron Research. A Twitter home page resembled that of Citron. The Twitter handle he created was @Citreonreseare. The research firm used the handle @CitronResearch.
Late morning, January 29, 2013 Mr. Craig used his newly created Muddy Waters Twitter account to tweet “AUDIENCE the noise suppression company being investigated by DOJ on rumoured fraud charges Full reot [sic] to follow[.]” Over about the next three hours seven more false tweets were sent out. The stock price dropped 28% from $12.35 per share to a low of $8.87 per share. Before trading was halted Mr. Craig purchased $3,549 worth of Audience stock. He later sold the shares, profiting $9.
The next day Mr. Craig essentially replicated his prior day’s activities, this time using the fake Citron Research account. He tweeted about Sarepta Therapeutics, Inc. It stated: “$SRPT FDA steps in as its 48 weeks results on Etelplisen [sic] results are tainted and have been doctored they believe Trial papers seized by FDA.” Two more false tweets followed.
Trading volume for Sarepta shares surged. From an intraday high of $29.30 just before the first tweet, the shares plunged to $24.50, a 16% drop. Later that morning the share price recovered. Mr. Craig purchased shares for $19,537. As with Audience, however, he missed the intraday low price. The shares were sold at a profit of about $88. Later on September 30 the firm issued a statement noting that it may be subject to market rumors through social media and that it would not comment on them.
In response to the false tweets regarding Audience and Sarepta investors sold hundreds of thousands of shares during the temporary depression in prices. Investors suffered losses totaling about $1.5 million. The false tweets also caused “tremendous intangible harm to the U.S. markets,” according to the complaint. That complaint alleges violations of Exchange Act Section 10(b). The complaint is pending. See Lit. Rel. No. 23401 (November 6, 2015).
The U.S. Attorney’s Office filed parallel criminal charges.
For more news and commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
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