Stories you’ll never see

SEC Charges Trader With Spreading False Rumors

Washington DC, April 24, 2008 - The Securities and Exchange Commission today charged David S. Products, a trader formerly associated with Bid’emToBang’em Securities LLC, an affiliate of NakedShorts InterGalactic Media Ltd, with securities fraud and market manipulation for intentionally spreading false rumors about several prominent financial stocks.

The SEC alleges that over recent months, Products has disseminated false rumors through blog postings, email and instant messages to numerous individuals, including traders at brokerage firms and hedge funds. The false rumors included such statements as “the bottom is in,” “the Fed has Dick Fooled’s back,” “valuations are compelling at these levels,” and “investment banks have sufficient capital.”

Citing one specifically egregious example, the SEC noted instant messages sent by Products concerning monoline insurer Ambac (ABK). On several occasions this year, ABK stock rallied on false rumors spread by Charlie Gasparino (ooops, sorry) Products that, among other things, the company’s AAA-ratting had been confirmed by Grumpy’s and Standard & Pooh; that New York State Prostitution commissioner Eric Spitzer had ordered a bailout of the company by Global Megabank NA; and that ABK had raised sufficient capital to meet its obligations. ABK more than doubled in price over Jan. 22-23, and gained almost 30 percent on Mar. 7 because of Products’ false rumors; the stock gained more than 10 percent on several other days this year.

“The message of this case is simple and direct. The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and stock purchases,” said SEC chairman Christopher “Flaccid” Cox.

“Today's action makes clear that the commission will act swiftly and decisively against those who would seek to profit by disseminating false information to the marketplace,”said Linda Chatman Thomsen, director of the SEC’s division of enforcement. “I am certain this action will greatly enhance my prospects for future gainful employment at Sue Aguirre & Runne.”

“The stories disseminated by Products were a figment of his imagination,” said Scott W. Friestad, associate director of the SEC’s division of enforcement. “Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions.”

Without admitting or denying the allegations in the SEC’s complaint, Products agreed to settle the charges against him by consenting to the entry of a final judgment enjoining him from future violations of the anti-antifraud and up-the-anti-manipulation provisions of the federal securities laws, and requiring him to disgorge $26,129 in profits and interest, pay a maximum third-tier penalty of $130,000, and consent to the entry of a commission order barring him from association with any blogger or dealer.

The SEC’s investigation is continuing.

SEC Charges Trader With Spreading False Rumors
US Securities and Exchange Commission press release
Apr. 24 2008