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From Securities Regulation Daily, November 6, 2015

Rogue Scottish tweeter sent stock prices reeling, says SEC

By Joanne Cursinella, J.D.

The SEC has announced securities fraud charges against a Scottish trader, James Alan Craig, whose false tweets caused “sharp drops” in the stock prices of two companies and triggered a trading halt in one of them, according to the complaint (SEC v. Craig, November 5, 2015). A federal grand jury in San Francisco has also indicted Craig for securities fraud.

False tweets. The SEC says that Craig tweeted multiple false statements about two companies on Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms in an attempt to manipulate the stock price.

According to the Commission’s complaint, Craig sent false tweets concerning Audience, Inc., a public technology company, from a Twitter account designed by him to resemble the account of a securities research firm called Muddy Waters Research, falsely stating that the Department of Justice was investigating Audience. As a result, the company’s share price dropped approximately 28 percent, prompting the NASDAQ exchange to temporarily halt trading of Audience stock.

The next day, Craig sent out false tweets regarding Sarepta Therapeutics, Inc., a public biopharmaceutical company, from a second Twitter account designed to resemble that of Citron Research, another securities research firm, falsely stating that the Food and Drug Administration had seized Sarepta’s drug trial papers and that certain trial results were tainted. As a result, the volume of trading in Sarepta stock spiked, and the company’s share price dropped 16 percent below where it had traded just before the false tweets.

According to the Commission, Craig often used the Twitter handles @dunragit and @HedgeyeAC to comment on publicly traded companies, including Sarepta, and 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.

Small financial gain, big personal loss. Craig attempted to capitalize on the downward stock price movement he caused, the SEC said, by buying and selling both Audience shares and Sarepta shares in an attempt to manipulate the equity price so that he could profit personally. Even though he waited too long each time to trade the stock and so only profited approximately $100 collectively from his manipulations, his conduct caused harm to the U.S. markets and investors by triggering significant stock price drops, which undermined investor confidence, the SEC added.

The Commission alleged that by this knowing or reckless use of phony tweets to manipulate stock prices of publicly traded securities, Craig violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks to enjoin Craig from further violations and to have him pay civil money penalties and to disgorge ill-gotten gains plus interest.

Criminal charges. In addition to the SEC’s charges, Craig was indicted on a single count of federal securities fraud in California, according to a DOJ release, based on the same conduct alleged by the Commission. “The allegations in this indictment describe a significant stock price manipulation committed through the use of social media,” said Acting U.S. Attorney Brian J. Stretch. “This prosecution makes clear that we will find and prosecute those who commit fraud on our stock exchanges, by any means, no matter where they reside,” he added.

The case is No. 3:15-cv-05076.

Attorneys: Elena Ro for the SEC.

Companies: Audience, Inc., Sarepta Therapeutics, Inc.

MainStory: TopStory Enforcement FraudManipulation InternationalNews CaliforniaNews

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