This week, the SEC charged British twin brothers with concocting an unusual scheme – that of a stock picking robot which they claimed could identify penny stocks that would appreciate sharply in value. The SEC’s action brings to light a warning for investors – to be wary not only of stock picking robots, but any kind of securities-related technology that seems too good to be true, much like any other securities fraud scheme. The danger in this stock picking robot was that it seemed plausible to investors – after all, analysts at top financial institutions use mathematical models in their predictions, so why shouldn’t a robot be able to make predications based on trends in the stock market? The problem here was that there was allegedly never any robot or program that used any kind of technical analysis, and the SEC claims the defendants allegedly promoted stocks for which they were paid to endorse. This apparent scheme began when the brothers were only 16 years old.
The defendants allegedly maintained separate websites, which included doublingstocks.com and daytradingrobot.com, which touted the stock picking robot, and equitypromoter.com, which had to do with their stock promoter business. With regard to the stock picking robot, the brothers touted returns of 34% per week – another warning sign for investors. Investors received the stock picks through a newsletter or a software program. The SEC alleges that the brothers actually used the newsletters sent to investors to tout thinly traded stock (for which they were paid to promote), which would spike dramatically in price, but would often readjust downward quickly, often leaving investors with shares worth less than when they were purchased the previous day. The SEC further alleged that the defendants provided detailed descriptions of how the stock picking robot operated – none of which were true, as the SEC claims the defendants simply promoted the stock they had been paid to promote.
The SEC’s action sends a warning to investors to be extremely wary of any kind of hard-to-believe investment strategy – whether it involves a stock picking robot or anything else which promises high returns. Investors should also do their research – the SEC has alleged that one of the brothers claimed to be 23-years old (he is currently twenty years old, according to the SEC’s complaint) and that he had seven years of experience trading. Check out the background of anyone with whom you are thinking of investing. FINRA and the SEC provide a good starting point if the individual is a registered professional or has been sanctioned by the SEC in the past. If you have unfortunately become a victim of one of these schemes, it’s important to get in touch with an attorney to guide you as to whether you can assert an individual claim against the wrongdoer.