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A Scottish trader has just been charged with securities fraud in the United States in a California federal court. According to the DOJ, James Craig, a trader from Dungarit, Scotland, set up phony social media accounts that mimicked famous market research firms and starting spreading false rumors of two companies.
In another interesting twist in this story, Mr. Craig cannot be found and it's not known if he's retained the services of a lawyer.
The Fake Twitter Account
In 2013, Craig set up a fake Twitter account under the handle @Mudd1waters and even used Muddy Water's logo. He then sent out a false tweet that tech-company Audience was being investigated by the DOJ for fraud -- ironically, enough. When the stock's price predictably fell, he scooped up 400 shares using his girlfriend's brokerage account and later sold at a nice profit. It wouldn't be a stretch to say this move was employed to dodge detection.
Craig liked this so much he decided to pull the same trick again, this time targeting Sarepta Therapeutics with false tweets utilizing a doctored Citron Research account.
So far, Craig has been charged with only a single count of securities fraud. Details are developing as to why only a single count of securities fraud has stuck. According to prosecutors, Craig's little shenanigans caused Audience's share price to fall 28 percent and the Sarepta's by 16 percent.
The Opposite Direction
Craig's intentional misinformation was specifically tailored to make a stock price fall. But there have been several cases in recent history where Tweets and other social media misinformation have artificially given an equity's stock a kick in the pants.
And if this sort of thing doesn't scare you -- well it should. Almost anyone has the ability to create a fake account that has the gloss and sheen of a legitimate identity. But the tendency of traders and even professionals to move quickly in the face of panic causes even seasoned professionals to get antsy in the seat. Look at excellent Brad's Blog piece offering an opinion of the dangers of fraudulent tweets.
No one is predicting that the equity markets will return to a more staid and even quaint way of determining proper market price. The days of open-outcry are quickly becoming a thing of the past. But this means that equity prices will only become more susceptible to the types of tricks that Craig so successfully implemented.
Where's the Line?
Perhaps trader should also consider that what Mr. Craig did is only the louder version of what people do daily in coffee houses across the planet?