The Securities and Exchange Commission has charged twin brothers with running an elaborate penny stock scam involving the use of a fictitious stock-picking robot.
Thomas Edward Hunter and Alexander John Hunter, now 20, were charged with fraud Friday in the U.S. District Court of the Southern District of New York. The scheme they allegedly masterminded goes back to when the twins were just 16.
In 2007, the Hunter twins, residents of the United Kingdom, allegedly began operating a website called doublingstocks.com to help promote a newsletter. That publication purportedly had stock tips and investment analyses from a stock-picking robot, according to the SEC's complaint.
“Marl” the robot supposedly studied small stocks and predicted price directions based on past performance and could “process 1,986,832 mathematical calculations per second,” according to the complaint. The site allegedly claimed that the robot's stock analysis generated weekly returns as high as 34%.
Marl's prowess seemed believable enough: Some 75,000 investors, mostly in the U.S., shelled out at least $1.2 million for annual subscriptions to the Doubling Stocks newsletter and for copies of Marl's software, the SEC said.
Concurrently, the twins allegedly ran a website called equitypromoter.com, targeting stock promoters and playing up the duo's ability to push up the price of thinly traded penny stocks, according to the complaint. The men brought in more than $1.8 million in fees from stock promoters, the SEC alleged.
In the end, Doubling Stocks readers and purchasers of Marl's “software” were actually buying stocks that promoters paid the brothers to tout, according to the complaint.
Indeed, the recommendations, which were released around 9:30 a.m., had a dramatic effect on share prices. One company saw its share price go up 300%, from 32 cents to 82 cents.
The SEC alleged that Alexander Hunter sought bids to create the home version of Marl's “software” in 2007 and described the proposed program to freelance software coders:
“Need a small software program which will appear to the user that once running it is analyzing thousands of penny stocks. IMPORTANT: This software does not actually find stocks at all. It should connect to my database and simply request any new stocks I have put in.”
The SEC claims that Alexander Hunter also scalped stocks, buying up shares before releasing newsletters with Marl's “findings” and then selling the shares after the price climbed.
From 2007 to 2009, the Hunters deposited their ill-gotten gains into a bank account in the U.K. until it was frozen by British authorities in 2009, the SEC alleges. As a result, the twins asked the provider processing their newsletter subscriptions to have their fees wired to a bank account in Panama in the name of another company the Hunters controlled called Regency Investment Group Corp.
The SEC is seeking undisclosed penalties and a disgorgement of the Hunters' gains, according to the complaint.
A call to the Hunters' attorney, Eric Bruce at Kobre & Kim LLP, was not immediately returned.