SEC charges U.K. twins over
"stock picking robot"
By Mike Caswell
The U.S. Securities and Exchange Commission has filed civil fraud charges against twin brothers from the United Kingdom, claiming that they set up an elaborate market manipulation scheme at the age of 16 that netted them millions of dollars. The brothers claimed to have created a "stock picking robot" that could identify penny stocks that would rise in value. They then convinced 75,000 investors to subscribe to a tout sheet based on the robot, called the Doubling Stocks newsletter. At the same time, they secretly charged stock promoters fees to have stocks placed in the newsletter. In all, the brothers netted $1.2-million in subscription fees from their newsletter and $1.8-million in promotion fees, the SEC says. (All figures are in U.S. dollars.)
The charges are contained in a civil complaint the SEC filed against the brothers on Friday, April 20, in the Southern District of New York. It names as defendants Thomas Edward Hunter and Alexander John Hunter, now both 20 years old. The complaint identifies 12 stocks the brothers promoted in 2007 and 2008. They include Holloman Energy Corp., an OTC Bulletin Board listing with ties to Vancouver, and UOMO Media Inc., an OTC-BB listing based in Toronto.
According to the complaint, the scheme began in 2007 when the brothers started using the website doublingstocks.com to advertise an electronic newsletter that purportedly relied on investment analyses performed by a "stock picking robot" named "Marl." The site claimed that Marl had been developed by Michael Cohen, a contractor who created a computer stock trading model for Goldman Sachs. According to the SEC, Marl was complete fiction, as there was no technical analysis behind the stock picks. In addition, there was no Michael Cohen that ever worked for Goldman Sachs.
Despite that, Marl became somewhat popular, the complaint stated. It attracted 75,000 subscribers, mostly from the United States, who paid a total of $1.2-million in subscription fees for the service. In return, they either received stock picks by e-mail or a version of Marl that ran on their home computer. The home-based version was programmed to make the appearance of performing a complex analysis, but would actually select stock picks from a database that Thomas Hunter maintained, the complaint stated.
At the same time, the brothers used another website, equitypromoter.com, to tout their ability to "rocket" the price of thinly traded penny stock issuers, the SEC said. The site proclaimed that Thomas Hunter was running extremely popular penny stock websites, which were attracting thousands of daily visitors. Many of those visitors provided their e-mail addresses and sought to receive weekly stock picks, the site stated.
The promoter site also proved popular, according to the complaint. Stock promoters paid a collective $1.8-million over the course of the scheme to have the brothers insert their companies into the Marl system or send them out as e-mail picks. As the newsletters were widely circulated and the promoted stocks were generally thin traders, the stocks often spiked dramatically after the picks went out, the SEC says. In most cases, they also quickly corrected downward, leaving investors with shares worth less than their original value.
With many of the stocks, promoters sold large numbers of shares after the picks were distributed, the SEC claims. The promoters wired payment for the touting to the brothers' bank account in the United Kingdom.
Out of the stocks the SEC listed, one of those with the largest gains was UOMO Media, a Toronto company that purports to be a "multi-channel entertainment company." Between May 18 and May 19, 2009, the stock went to $1.06 from 35 cents after a recommendation by doublingstocks.com. Its volume went to 20.3 million shares, from 86,000. (By May 22 the stock had fallen to 33 cents, and it was last at 0.2 cent.)
Also on the list was Holloman Energy, an oil and gas company that, around the time of the newsletters, listed a Calgary office and a Vancouver contact number. On Nov. 6, 2007, the day the newsletter listed it as a pick, the stock rose to $1.04 from 94 cents on substantially higher volume of 716,900 shares. (By Nov. 13 the stock had fallen to 70 cents, and it was last at 26.5 cents.)
According to the SEC, one of the difficulties the brothers faced was collecting money without attracting too much attention. Initially, they had deposited money from stock promoter payments and newsletter subscription fees directly into a U.K. bank account. They had to change their practice when, in January, 2009, British authorities froze that account. From that point they used a Panamanian bank account, the complaint stated.
The SEC is seeking disgorgement of profits and appropriate civil penalties. In addition to the brothers, the suit names as a relief defendant a Panamanian company, Regent Investment Group Corp.
None of the companies the brothers promoted, including the two Canadian stocks, are listed as defendants or accused of wrongdoing.