A Scottish man was indicted for securities fraud for spoofing short ideas researchers Muddy Waters and Citron Research to profit from stock declines. In joint actions, the US Department of Justice (DOJ) filed criminal charges and the US Securities and Exchange Commission (SEC) filed civil charges against a 62 year old resident of Dunragit, Scotland.
The complaints allege that James Alan Craig created two Twitter accounts in January 2013 mimicking Muddy Waters and Citron Research and then posted a series of tweets from “Conrad Block” and “@Citronresearch”.
From the fictitious Muddy Waters account he reportedly attacked Audience, Inc. driving the share price down 28% and triggering a trading halt in the shares. Craig intended to profit by purchasing the shares at their low point but bungled the timing and his $3,500 order ultimately resulted in a profit of only $9.00.
According to the complaints, he then used the bogus Citron Research Twitter account to go after Sarepta Therapeutics, Inc. causing the stock price to fall 16% intraday. Craig again mistimed his purchase and netted only $88.00 from his trades.
Under the DOJ indictment, Craig faces a single count of securities fraud, which carries a maximum 25-year prison sentence and $250,000 fine. The SEC is seeking injunctive relief, disgorgement of ill-gotten gains (less than $100), and imposition of civil monetary penalties.
Our Take
It is hard to believe that such inept attempts to replicate Muddy Waters and Citron Research would cause more than $1.6 million in losses to shareholders, as cited in the complaints.
Hello traders, the name is CARSON Block, not Conrad Block. Craig’s Citron spoof was @Citreonresearc not @Citronresearch, although he did copy and paste the Citron logo and Twitter address as a header to his account. Are traders that oblivious? Apparently so.
US regulators are throwing the book at the poor Scottish schlep as a signal that spoofing is rated as a major securities crime. The ultimate takeaway here though is the awesome power of social media and the growth of its impact on finance.