A federal court entered final judgement against a Scotland-based trader that used false tweets to drive down the value of publicly-traded securities. In two instances, the defendant used fake twitter accounts to announce that regulatory agencies were investigating the firms. He then tried to buy the stocks on the resulting dips, although he waited too long to trade and did not profit. The SEC faults the defendant for causing significant market disruption, leading to trading halts.
The use of social media to disseminate false information is a big social issue, but such conduct has significant economic and legal consequences in the securities markets. Perhaps, the regulators (led by the SEC’s Cyber-Unit) should engage with social media platforms to determine how to regulate the third-party distribution of information about specific issuers.
The SEC and the Department of Justice have instituted civil and criminal proceedings against a UK-based broker-dealer/investment manager alleged to have engaged in stock manipulation with an undercover FBI agent. After suspecting stock manipulation, the FBI sent an undercover agent to suggest a matched trade scheme to manipulate the stock price of a microcap stock. The SEC alleges that the defendants, which include the BD/IA and executives of the traded company, helped the FBI agent pursue his scheme because they would receive kickbacks. The FBI also relied on recorded telephone conversations with the executives.
OUR TAKE: A message for potential wrongdoers: The person with whom you plan to conspire may be an undercover FBI agent whose colleagues are recording your phone calls. If you engage in stock manipulation, you may go to jail.