LawFuel.com – Legal Newswire –
Washington, D.C., May 21, 2009 – The Securities and Exchange Commission today charged a trader from Fort Myers, Fla., with fraud for writing and disseminating a fake press release that, when reported in the media, caused a company’s stock price to soar and allowed him to reap thousands of dollars in illicit profits.
The SEC alleges that Richard Karp created the phony press release as an announcement from WCI Communities, Inc., and he faxed it to media outlets in an effort to manipulate the stock price of the Florida-based luxury home building company, whose stock was traded on the New York Stock Exchange. The bogus press release falsely stated that WCI’s board of directors received a buyout offer potentially worth $220 million. After this fake news was reported publicly by media outlets, WCI’s share price increased dramatically and Karp quickly sold his shares to generate his illegal profits.
“As alleged in our complaint, Karp actively traded in WCI’s stock while hoping that a major shareholder would make a buyout offer,” said David Nelson, Director of the SEC’s Miami Regional Office. “When that didn’t happen, Karp tried to take the news into his own hands to enrich himself and cheat the investing public.”
The SEC’s complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that Karp drafted and disseminated the bogus WCI press release so that he could sell his WCI stock at an inflated price. Karp had actively traded the stock of WCI throughout late 2007 and early 2008, and in early July he bought 42,000 shares of WCI for approximately $54,700. However, on July 14, WCI announced that it was no longer engaged in discussions with affiliates regarding alternative restructuring proposals.
The SEC alleges that Karp attempted to drive up WCI’s share price by creating and faxing the bogus press release to Southwest Florida and national media outlets on a Saturday evening, July 19. The fake news was consequently reported by at least four Fort Myers media outlets. WCI’s share price increased dramatically the following Monday morning, July 21. Karp sold his shares in pre-market trading that day, generating approximately $29,000 in illegal profits.
The SEC’s complaint charges Karp with violating Section 17(a) of the Securities Act of 1933, Sections 9(a)(4) and 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest and the imposition of a financial penalty.
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