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Fraudulent Stock Tweets Result In Civil And Criminal Charges For Scottish Man

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A Scottish man is facing civil and criminal charges for allegedly tweeting multiple false statements about two companies that caused significant drops in the stock prices of those companies and even triggered a trading halt in one of the companies.   James Alan Craig, 62, is a Scottish resident who is accused of creating two Twitter accounts that closely resembled two well-known established securities research firms in an effort to profit from an anticipated downward movement in the stock prices when the tweets became publicized.  In parallel actions announced today, both the Securities and Exchange Commission and the Department of Justice announced civil and criminal charges, respectively, against Craig.   Ironically, Craig's attempt to profit from the false tweets ultimately netted him less than $100.

In January 2013, Craig created two Twitter accounts with handles designed to mislead users into thinking that the accounts belonged to well-known equity research firms.  Craig created the @Mudd1waters account on January 25, 2013, with the handle designed to make observers believe that the account belonged to the firm Muddy Waters.  Similarly, on January 29, 2013, Craig created the @Citreonresearc account in an effort to create the appearance of an official account by Citron Research.  To add an air of legitimacy to the accounts, Craig used the existing logo of the equity research firm, referenced a prominent member of the relevant firm, and posted a link to the firm's website.

On January 29, 2013, Craig issued the following tweet about Audience, Inc. ("Audience") from the fictitious Muddy Waters account:

Craig followed that tweet with a slew of other tweets, including six retweets of the original tweet and an additional tweet that Audience was delaying the release of its annual report.  This tweet caused an increase in the trading of Audience's stock, as well as a significant downward spike in the share price.  Audience's share price fell from $12.35 per share to a low of $8.87 per share - a 28% drop - and triggered a trading halt in the shares.  Craig later purchased approximately $3,500 in shares of Audience stock, but his purchases were not timed with the low point of the stock's price and ultimately resulted in a profit of $9.00.  As alleged by authorities, the tweet was inaccurate and there was no impending report to be issued by Muddy Waters.  Within twenty minutes of the initial downward spike in Audience's share price, the stock has recovered its losses.

The next day, Craig used the fake Citron Research account to issue the following tweet about Sarepta Therapeutics, Inc.:

This time, Craig claimed that the Food and Drug Administration had seized papers pertaining to the company's drug trials and warned of negative trial results.  As had happened with the price of Audience stock, the price of Sarepta shares fell sharply in the time following publication of the tweet and ultimately reached an intraday low of 16% under the stock's pre-tweet price.  Again, Craig attempted to purchase Sarepta shares in an attempt to capitalize from the stock's climb once the market disseminated and rejected the news, and again he failed to catch the stock at its intraday low and ultimately netted approximately $88.00 from the trades.

According to authorities, Craig did not stop with the Sarepta and Audience tweets.  On January 30 and 31, 2013, Craig used other Twitter accounts under his control to message other Twitter users to comment on his manipulation, including questions about the seriousness of the offense and surmising that the perpetrator would be heard to find because they did not use their own name on Twitter.

In July 2013, Craig issued another tweet from the @Mudd1waters account about biotechnology company Intuitive Surgical, Inc. ("Intuitive Surgical"), stating that the company was under investigation from the SEC and Department of Justice over "robotic safety and alleged mis-conduct."  This time, the markets did not react negatively and Craig made no efforts to profit from any anticipated movement in Intuitive Surgical shares.

Craig faces a single count of securities fraud, which carries a maximum 25-year prison sentence and $250,000 fine.   The Commission has accused Craig of violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains (less than $100), imposition of civil monetary penalties, and other relief ordered by the Court.

Jordan Maglich is a securities law attorney at the Tampa, Florida law firm of Wiand Guerra King, and also writes frequently at Ponzitracker.com.  You can follow him on Twitter here.