The Securities & Exchange Commission (SEC) has sued a Pakistani trader, securing an emergency asset freeze. The SEC alleged that the trader manipulated the stock of a Silicon Valley tech company by issuing a fake securities filing in order to profit on his call options.
Nauman A. Aly is alleged to have created a fake report in the SEC’s securities filing system in order to turn a quick profit on call options he owned relating to shares of Integrated Device Technology Inc. (IDTI). In a matter of minutes, Aly’s scheme would have netted profits of $425,000 if left unchecked.
According to the complaint, Aly purchased $18,500 in call options for IDTI on April 12, when the company’s share price was $19.01. The options expired three days later and had a strike price of $20, which means that Aly would have turned a profit only if the stock rose by at least one dollar.
In an effort to create a certain profit on his option trade, Aly obtained a unique key number allowing him to file regulatory forms with the SEC’s EDGAR system. He filed a fake form through EDGAR just eight minutes after purchasing his call options, which represented that he and six Chinese citizens collectively had acquired a 5.1% ownership interest in IDTI. Aly’s filing stated that his “group” sent a letter to IDTI’s board of directors offering to buy shares for a 65% premium on its share price.
Within minutes of his filing, the stock shot up more than 25%, rising to nearly $24, and Aly sold his call options. Though he made money, his entire scheme lasted less than 30 minutes. IDTI claimed it had no knowledge of Aly’s actions and never received a letter from him.
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