SEC Charges: Two Stocks Were Manipulated in the Market by False Tweets

Washington D.C., November 5, 2015 — The U.S. Securities and Exchange Commission (SEC) has filed securities fraud charges against a Scottish trader, James Alan Craig, whose false tweets caused significant stock price drops for two companies and even triggered a trading halt for one of them.
According to the SEC’s complaint filed in the federal court in the Northern District of California, Craig, a resident of Dunragit, Scotland, tweeted multiple false statements about these companies using Twitter accounts that he had deceptively created to resemble genuine Twitter accounts of well-known securities research firms.
Simultaneously, the U.S. Attorney’s Office for the Northern District of California filed criminal charges against Craig.
The SEC alleges that Craig’s initial false tweets led to a 28 percent decline in one company’s share price, prompting Nasdaq to temporarily halt trading. Subsequently, his false tweets regarding another company caused a 16 percent drop in its share price. During these incidents, Craig attempted to profit from the significant price swings by buying and selling shares of the target companies, albeit largely unsuccessfully.
The SEC’s investigation also uncovered that Craig later used aliases to tweet that it would be challenging for the SEC to identify the source of the false tweets because real names were not used.

As per the SEC’s complaint:

1. On January 29, 2013, Craig utilized a Twitter account he had created to send tweets falsely claiming that Audience Inc. was under investigation. He intentionally designed the account to resemble the securities research firm Muddy Waters by employing the actual firm’s logo and a similar Twitter handle. The share price of Audience Inc. plummeted, and trading was halted until the fraud was uncovered and the stock price rebounded.
2. On January 30, 2013, Craig used another Twitter account he had established to send tweets falsely suggesting that Sarepta Therapeutics Inc. was under investigation. In this instance, Craig deliberately made the Twitter account appear as if it belonged to the securities research firm Citron Research, once again utilizing the actual firm’s logo and a similar Twitter handle. Sarepta’s share price dropped by 16 percent before recovering once the fraud was exposed.

The SEC’s complaint charges Craig with securities fraud, violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction against future violations, disgorgement, and a monetary penalty from Craig.
Additionally, the SEC has issued an Investor Alert titled “Social Media and Investing – Stock Rumors” to caution investors about potential fraudsters who may seek to manipulate stock prices by disseminating false or misleading information via social media. The alert provides guidance on recognizing red flags of investment fraud.
The SEC’s investigation involved the Market Abuse Unit’s staff, including Elena Ro, John Rymas, and Steven D. Buchholz, and was supervised by Joseph G. Sansone, Co-Chief of the Market Abuse Unit. The SEC’s litigation will be led by Ms. Ro and John S. Yun of the San Francisco Regional Office. The SEC expresses its appreciation for the assistance provided by the U.S. Department of Justice and the Federal Bureau of Investigation.

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