US Charges English Twins Over $1.2m 'Stock Robot' Fraud 114
peetm writes "Twin brothers from England face U.S. civil charges for allegedly defrauding investors out of $1.2m (£745,000) through a bogus stock-picking robot. The twins, Alexander and Thomas Hunter, were just 16 years old when they devised the scam — which fooled around 75,000 people, according to U.S. officials."
Re:Had to read the article... (Score:5, Informative)
The Hunters claimed that "Michael Cohen" had developed a Goldman Sachs trading algorithm that reaped billions in profits.
that's what they did wrong.
Re:Had to read the article... (Score:4, Informative)
It can be very hard to find someone independant and trustworthy, which is why we have all sorts of rules, loads of legislation and pretty stiff penatlies for this sort of stuff. Otherwise assholes (of the corporate or independant variety) defraud people, like what happened here.
Re:Had to read the article... (Score:4, Informative)
Didn't some banks recommend people buy stocks and derivatives that they themselves were trying to get rid of? I suppose they're going to be charged with fraud too?
No. Other than the teen twins, they did their homework and bought the proper laws first. If you do your paperwork properly (i.e. get registrated, "regulated" and put the proper disclaimers on the stuff you sell) then you can pretty much do whatever you want. Oh, and if you blow up, the government will bail you out.
Re:Had to read the article... (Score:5, Informative)
Needed to figure out what exactly was bogus about this since there shouldn't be anything too wrong about someone recommending stocks that fail even with a "robot".
The Securities and Exchange Commission said the stocks "picked" were actually firms that paid the twins hefty fees
I assume it's because there's a difference between just being bad stocks and being bribed into recommending stocks.
This is a good question, though I think you missed the answer (for the UK side of things anyway) from TFA:
In November, Newcastle Crown Court ordered Alexander Hunter to pay back nearly $1m after he admitted providing unregulated financial advice. He was given a suspended 12-month prison sentence.
In the UK the first mechanism to protect the public from investment-related fraud (which this blatantly is) is that if you give financial advice you have to be signed up to the Financial Services Authority. That is rigorously enforced and isn't trivial to accomplish so right off the bat they've got a very solid case against basically all the fraudsters except those that probably could make a decent living being bona fide. That's what these twins have been caught by.
To protect against the registered guys, well signing up to the FSA subjects you to rules and by-laws (laws that only apply to specific people) which require specific things and hold you to a much higher standard than is generally applied of the public - as you can see here [fsahandbook.info], the industry is heavily regulated. I don't know much on the details of the FSA rules, but at first glance these twins seem to fail more than half of the fundamental principles [fsahandbook.info].
On top of that, these guys probably could have been caught under the Fraud Act 2006 [legislation.gov.uk] (though Wikipedia has a decent summary [wikipedia.org]) since a) they made specific factual claims about their products which they knew were not true and b) as you point out they were bribed into recommending stocks - being paid to do so would actually be OK if only they'd disclosed it.
Although punishment under the Fraud Act is more severe, and at first glance appears most appropriate given these guys were clearly intentionally defrauding their customers, it still hard to win in court whereas getting them for not being FSA regulated is easy.
Incidentally, some of these rules cross borders in both directions - someone based overseas marketing their dodgy dealings in the UK can still be subject to UK laws, while a UK firm can be subject to UK laws while operating overseas (even if they do it via a third party based there).
I gather the US has a very-broadly similar set of tools via the SEC.
'put' option (Score:5, Informative)
to clarify the term: a 'put' is an option to sell at a certain price. so one makes money if the market price is lower than the option price.
It's a bet that the item's price will go down, and in this case a distrust of his banker's stock tips.
('call' option is the other way around)