The Securities and Exchange Commission leveled new charges, this time against a Virginia engineer, in a 2016 scheme to manipulate the stock prices of wearable technology company Fitbit that’s already resulted in a two-year prison sentence for one of the conspirators.
According to federal regulators, Mark Burns and Robert Murray, who pleaded guilty last year to parallel charges, orchestrated a scheme using falsified information filed through the SEC’s public Electronic Data Gathering, Analysis, and Retrieval system to trick investors into thinking a fictitious company was on the verge of buying premium Fitbit stock at a big markup.
In reality, the government said, Burns and Murray had placed sophisticated call options on the company’s stock that resulted in big gains after the market reacted to the fake news.
“We allege that Burns and Murray tried to camouflage their identities and their affiliation with an EDGAR account by using disguised IP and email addresses,” Robert Cohen, chief of the SEC’s cyber unit, said in a statement. “Despite their sophisticated efforts to avoid detection, we stopped their alleged abuse of our filing system and charged them with being responsible for this manipulation.”
The SEC alleged that the pair, along with potential co-conspirators, created a fake company, ADM Capital, that manipulated the identity of a Chinese executive of a Pennsylvania company to register an EDGAR account through a California internet protocol address.
On Nov. 9, 2016, Murray, Burns, or someone working with them allegedly filed an SEC form through EDGAR that included a letter from the Chinese executive to Fitbit’s board, claiming to follow up on preliminary discussions about having the imaginary company ABM Capital acquire all of Fitbit’s outstanding Class A common shares at $12.50 per share.
The news sent Fitbit’s shares, which were trading at $8.41 per share just before the SEC filing went public, higher, peaking quickly at $9.28 per share. Only minutes before the filing with the SEC was submitted, Murray allegedly purchased $887 worth of out-of-the-money call options on Fitbit stock. Burns, likewise, allegedly did the same, spending $3,640 for 40,000 shares with strike prices between $8.50 and $9 a share.
As Fitbit’s sock soared in the minutes after the allegedly fake SEC filing went public, the pair sold off their call options, each making a gain of a bit more than 350 percent on the transactions, with Burns making a profit of $13,008 on the stock, according to the SEC.
The SEC, along with the U.S. attorney for the Southern District of New York, charged Murphy with securities fraud in May 2017. In November, he pleaded guilty. A spokesman for the SEC declined to comment on Murphy’s relation to the new charges against Burns, specifically whether he was cooperating with federal authorities.
Burns is charged with three separate securities fraud violations. Information about counsel was not immediately available.