Tweeting False Information is a Crime

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Yes tweeting false information is a crime, at least in the USA. Scottish trader James Craig has been charged by US prosecutors with fraud after he set up two twitter accounts and distributed false information on US firms Audience and Sarepta. This caused the share prices of those companies to fall by 28% and 16% and caused investors to lose over £1 million. Mr Craig has now disappeared.

Mr Craig used Twitter account names that were similar to those of Muddy Waters and Citron Research who are both well known for publishing devastating critiques of companies. The FBI led the investigation into the case and the SEC filed the case in court. Brian Stretch, Acting U.S. Attorney in the Northern District of California said “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“.

That’s a pretty strong warning to those who use social media as part of stock manipulation schemes. Whether the UK authorities would be able or willing to pursue such cases is another matter altogether. To begin with there is no legal concept of “fraud on the market” as in the USA. The companies themselves cannot easily claim to be damaged and investors would have to rely on exceedingly complex and archaic general tort law (i.e. a civil case) or on the police/SFO pursuing a “conspiracy to defraud” action – a complex kind of case. There is no equivalent criminal law which is surely what we need.

Roger Lawson

  1. This conduct is probably market abuse, and attracts civil penalties. It would also be actionable by the company as a libel/malicious fasehood.

    In the UK fraud is mostly left to be prosecuted thoughthe civil courts, a fact conveniently forgotten by those politicians who fulminatte against the “compensation culture”.

    Robert Morfee

  2. sharesoc says:

    Companies are very reluctant to pursue libel actions because of the extra publicity that arises and because it’s a diversion of management time. I think under the latest changes to UK libel law they would also need to prove actual financial loss to the company which would be very difficult.
    But you are right that it would be “market abuse” under the Financial Services and Markets Act so the FCA could certainly pursue the matter if they had the resources to do so. I look forward to seeing the first such case in the UK – one has to ask why there has not been one so far as I recall despite the numerous rampers (and the opposite) on twitter and on bulletin boards.
    Roger Lawson

    • Yes. A claimant in a defamation action, or an action for malicious falsehood, must show loss or “serious harm”. What harm is done will depend on the company, but in the case of a company dependant on borrowing there may be a real effect of a plunge in share price.

      I agree that the remedies in the UK are unsatisfactory; the state does not spare much cash for fraud and similar prosecutions because results are so difficult and expensive to obtain. It’s an unrewarding activity for a risk averse civil servant. The civil courts are increasingly inaccessible. So misconduct goes unpunished and remains attractive. Hence the lack of morals in finance which many commentators have deplored over the years.

      Robert Morfee

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