Investing

SEC Freezes Assets Tied to False Regulatory Filing

The U.S. Securities and Exchange Commission (SEC) has obtained a court order to freeze the profits of a trader who allegedly manipulated a technology stock through a false regulatory filing traced to a computer in Pakistan.

The asset freeze was issued in federal court in Manhattan and it ensures that Nauman A. Aly of Pakistan cannot withdraw from his U.S.-based account the $425,000 in options trading profits made in less than 30 minutes last month after the false filing.

The filing stated that Aly and six Chinese investors had collectively acquired 5.1% of Silicon Valley-based Integrated Device Technology Inc. (NASDAQ: IDTI).  According to the SEC’s complaint, his false statements caused the company’s stock to spike more than 25% within minutes.

Andrew Ceresney, director of the SEC Enforcement Division, commented:

We allege that Aly tried to fool the markets from a computer in Pakistan to make an easy profit, but we made sure he didn’t cash in.  Market manipulation doesn’t pay, no matter the method or how distant the perpetrator.

According to the SEC’s report:

  • On April 12 at 11:50 a.m. Eastern Time, Aly purchased 1,850 call options in IDT in his U.S. brokerage account for $18,500.
  • At 12:08 p.m., Aly filed a form known as a Schedule 13D on the SEC’s EDGAR system and falsely stated that his group of investors had a 5.1 percent beneficial ownership of IDT and had sent a letter to the board of directors offering to acquire all of the company’s shares for a price that represented a 65 percent premium.
  • The market reacted quickly to the filing, and IDT’s stock price increased by more than 25 percent in less than 10 minutes.
  • At 12:18 p.m., Aly sold all of the options for the illicit $425,000 profit.  He then filed another Schedule 13D stating that his group of investors no longer owned more than 5 percent of IDT after his options sales.
  • Aly used the same IP address for the options trades that he used to make the false filings.
  • Aly’s group of investors never actually owned 5.1 percent of IDT and never contacted IDT to buy all of its shares.