FAKE NEWS, FAKE TENDER OFFER, YIELDS SEC, DOJ CHARGES
The Commission brought an enforcement action, in conjunction with the Manhattan U.S. Attorney’s Office, charging Robert Murray with conducting a fake tender offer using fake news. The purpose was to manipulate the share price of Fitbit, Inc. It worked – the manipulation was not fake. Mr. Murray caused the share price to spike over 350% in one day. SEC v. Murray, Civil Action No. 1:17-cv-03788 (S.D.N.Y. Filed May 19, 2017).
Mr. Murray is a Virginia based mechanical engineer. In November 2016 he took a series of steps to prepare for, implement and execute a fake tender-offer for Fitbit shares using fake news:
The plan: The plan was to profit from an increase in the price of Fitbit shares resulting from a fake tender offer using by fake news.
Preparation: To create a fake tender offer Mr. Murray decided to obtain EDGAR login credentials fin the name of some else. Using a California IP address the name of an Executive of a Pennsylvania firm with an office in Shanghai was obtained. The name of the Executive was then used to create a new email account. Mr. Murray filled out Form ID for EDGAR using the Executive’s name and the newly created email address for a firm called ABM Capital. The form was finalized with a false notary stamp and used to secure EDGAR login credentials for ABM Capital.
Study: Mr. Murray carefully studied prior Commission cases where similar actions had been undertaken. He also gathered news articles and other materials. Research was conducted regarding the forms to file.
Implementation: By November 9, 2016 Mr. Murray was ready. He purchased Fitbit call options in the morning. An attempt was made to file Schedule TO-C on EDGAR related to Fitbit. The filing was rejected because it contained an incorrect identification number for Fitbit. A second Form TO-C was filed. It stated that ABM Capital had submitted a letter to the Fitbit board of directors proposing to acquire all of the outstanding Class A shares at a price of $12.50 per share. The filing referenced earlier communications, listed the Executive as the CFO of ABM Capital and used the address for the Shanghai office of the Pennsylvania firm.
Impact: News outlets reported the tender offer proposal. The price immediately spiked by over 10% to $9.28 per share. By the close of the market the price retreated to $8.86 per share.
The end: Mr. Murray sold his options realizing profits of $3,118. The company later issued a press release denying that there was any tender offer. The fake news caused real harm to the capital markets. Over 25 million shares of Fitbit were traded, up 77% over the prior day. Investors purchasing shares following the announcement paid an artificial price.
The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 14(e). The Commission’s case, as well as that of the U.S. Attorney’s Office, is pending. See Lit. Rel. No. 23836 (May 19, 2017).