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Scottish Man Charged in Twitter Fraud Scheme

SAN FRANCISCO (CN) - A Scotland man accused of using fake Twitter accounts to manipulate the stock prices of two companies was indicted on criminal charges and sued by SEC.

James Alan Craig, 62, of Dunragit, Scotland, set up phony Twitter accounts designed to resemble those of real marketing firms and tweeted false information about publicly traded companies in 2013, according to a criminal indictment and U.S. Securities and Exchange Commission complaint filed Thursday.

Craig set up a Twitter account on Jan. 25, 2013, called @Mudd1waters, designed to mimic the Twitter handle of financial firm Muddy Waters Research, and he used the firm's logo as part of the account, the government claims.

Four days later, Craig used the phony account to send out tweets claiming Bay Area sound technology firm Audience Inc. was "being investigated by DOJ on rumored fraud charges" and that the company was holding back its annual report, the SEC claims.

Shortly after his first tweet, Audience's share price began tumbling from $12.35 to $8.87 per share, a 28-percent decline. That same day, Craig bought $3,549 worth of Audience stock using his girlfriend's TradeMonster account, according to the government.

Less than three hours after the fraudulent tweets aired, the real Muddy Waters firm responded that it had issued no such report on Audience and called Craig's tweets a "hoax." Audience's stock price quickly bounced back to $12.28 per share by the end of the day, according to the SEC.

Because Craig did not get the stock's lowest price when he bought Audience shares that day, he later sold the shares for a profit of about $9, the SEC says.

The government says Craig took another crack at his social media-based securities scheme the next day, allegedly tweeting false information about the Washington-based biopharmaceutical firm Sarepta.

Using a Twitter handle that mimicked that of securities research firm Criterion Research, Craig said that the results of a Sarepta drug trial were "tainted" and that its papers were seized by the U.S. Food and Drug Administration, according to court filings.

Within three minutes, Sarepta's share price fell 16 percent from $29.30 per share to $24.50, but the stock price bounced back five minutes later to $28.32 per share, the SEC says.

"Again, that same day, Craig bought Sarepta shares totaling $19,537, but failed to catch the intraday low price for the stock," the SEC complaint states. "He later sold these shares and made a profit of approximately $88.00."

Although Craig didn't make a substantial profit from the alleged scheme, the U.S. government claims his Twitter antics caused shareholders to lose more than $1.6 million.

"Craig's false tweets and manipulative conduct caused substantial market disruption and loss, and caused Nasdaq to halt trading in a security," the SEC complaint states.

The SEC seeks an injunction to stop Craig from violating securities laws in the future, as well as civil penalties and disgorgement of ill-gotten profits.

In a separate criminal indictment, the U.S. government charged Craig with a single count of securities fraud. If convicted, the Scotland man faces a maximum prison sentence of 25 years and maximum fine of $250,000, along with restitution.

"The allegations in this indictment describe a significant stock price manipulation committed through the use of social media," Acting Northern California U.S. Attorney Brian Stretch said in a statement. "This prosecution makes clear that we will find and prosecute those who commit fraud on our stock exchanges, by any means, no matter where they reside."

Craig is not the first person to face securities fraud allegations for statements made on social media. Last year, a New York financial advisor paid $100,000 to settle claims that he made false statements about publicly traded companies on Twitter and in newsletters.


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