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SEC Issues an Investor Alert on Social Media and Investing (Part II)

On Behalf of | Mar 15, 2016 | Securities Laws, Uncategorized

SEC v. Craig.

On November 5, 2015, the Securities and Exchange Commission (“SEC”) filed securities charges against James Alan Craig, a 62-year-old Scottish trader.[1]  The SEC’s complaint concerns Craig’s use of Twitter accounts to commit securities fraud by making false statements about publicly traded companies in order to manipulate the price of those companies’ exchange-traded securities.  Just as the SEC warned in the investor alert of fraudsters who conceal their true identities by mimicking credible sources of market information, the complaint alleges that Craig created the Twitter accounts to mislead the public into believing that tweets issued from those accounts were from established securities research firms.  Specifically, Craig purposely made his Twitter handles resemble those of two securities research firms, Muddy Waters and Citron Research (@Mudd 1 waters, as opposed to @muddywatersre, and @Citreonresearc, as opposed to CitronResearch) and even used their logos on the fake Twitter pages.

The SEC alleges that on January 29, 2013, Craig sent out the following phony tweet regarding Audience, Inc. (“Audience”), a public technology company, from his fake Muddy Waters account: “AUDIENCE the noise suppression company being investigated by DOJ [Department of Justice] on rumoured fraud charges Full reort [sic] to follow[.]” and issued seven other similar tweets or retweets.  Not long after, the SEC said, trading activity in Audience’s stock began increasing and the share price began to fall sharply, triggering Nasdaq’s single stock circuit breaker and trading of Audience shares was halted.  According to the SEC, that same day, Craig bought and sold Audience stock, but failed to catch the stock’s intraday low price and only made a profit of approximately $9.  The SEC further alleges that on January 30, 2013, Craig sent out the following phony tweet about Sarepta Therapeutics, Inc. (“Sarepta”), a public biopharmaceutical company, from his fake Citron Research account: “$SRPT FDA steps in as its 48 weeks results on Etelplisen [sic] results are tainted and have been doctored they believe Trial papers seized by FDA” and sent out at least two false tweets with the same statement.  A few minutes later, the SEC said, the volume of trading in Sarepta shares began to climb and company’s share price began to drop.  Again, the SEC said, that same day, Craig bought and sold Sarepta shares, but failed to catch the intraday low price and only made a profit of approximately $88.

The SEC alleges that Craig often used other Twitter accounts to comment on publicly traded companies, including those discussed above, though he did not always make profits.  Nevertheless, the SEC said, Craig’s false tweets and manipulative conduct caused substantial market disruption and loss and caused Nasdaq to halt trading in a security.  According to the SEC, in reaction to Craig’s false and misleading tweets and the subsequent drop in price, investors sold hundreds of thousands of shares and sustained estimated losses of approximately $1.5 million in total, as well as tremendous intangible harm to the U.S. markets as the unwarranted and substantial stock price drops undermined investors’ confidence.  The SEC requested that Craig be enjoined from future violations, pay civil monetary penalties, and disgorge his ill-gotten gains, plus judgment interest thereon.

This post was part of a multi-part series on SEC’s investor alert on social media and investing.  You can find the other posts by searching our blogs at  In our next post, we will discuss SEC v. McKeown, a 2010 SEC enforcement action involving a Canadian couple who used a website and Twitter to manipulate stock prices.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] See generally Complaint, SEC v. Craig, No. 3:15-cv-05076 (N.D. Cal. Nov. 5, 2015).  Unless otherwise noted, all references to the SEC’s allegations in this posting are from the complaint.