SEC Complaint Charges For Phony Muddy Waters Tweets
On November 6, 2015, the SEC announced that it charged James Alan Craig (Craig) with a market manipulation scheme. The SEC filed criminal securities fraud charges against Craig, a Scottish trader whose phony tweets caused sharp drops in the stock prices of two companies and triggered a trading halt in one of them. According to the SEC’s complaint, Craig created false accounts that looked just like the accounts of two well-known securities research firms claiming that they were both under investigation. 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. Both occasions, Craig bought and sold shares of the target companies in a very unsuccessful effort to profit from the sharp price swings.
The SEC Complaint alleged that on January 29, 2013, Craig used a Twitter account that he created to send a series of phony tweets that falsely said Audience, Inc. was under investigation. Craig intentionally made the account look like it belonged to the securities research firm, Muddy Waters Research, by using the actual firm’s logo and a similar Twitter handle. Audience’s share price dropped and trading was halted before the fraud was revealed and the company’s stock price recovered. The Complaint also claims that on January 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, once again, deliberately made the Twitter account seem like it belonged to the securities research firm, Citron Research, using the real firm’s logo and a similar Twitter handle. Sarepta’s share price dropped 16% before recovering when the fraud was exposed. Although Craig’s conduct caused harm to the U.S. markets and investors by triggering significant stock price drops, which undermine investor confidence, he waited too long each time to trade the stock and therefore only profited about $100 altogether from his manipulations.
The SEC Complaint charged Craig with securities fraud and violation of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC Complaint seeks a permanent injunction against future violations, disgorgement, and a monetary penalty from Craig.
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