An Internet-based pump-and-dump scheme featuring a fake "stock picking robot" that purportedly could pick penny stocks poised to double in price, allegedly hooked 75,000 investors and their $1.2 million, according to SEC charges.  The scheme allegedly was conducted by twin brothers from the U.K. - Alexander John Hunter and Thomas Edward Hunter - who were just 16 years old when they began their fraud in 2007. The brothers claimed that a former trading algorithm programmer from a large investment bank had designed the stock picking robot, named "Marl."  For $47, investors - mostly from the U.S. - received annual newsletter subscriptions that touted stocks supposedly selected by the robot, which they described as a highly sophisticated computer trading program that was the product of extensive research and development.  Some investors paid an additional fee for the "home version" of the robot software.  However, the stocks touted in the newsletters were stocks the brothers were being paid to promote. E-newsletters were disseminated through a pair of websites - Doublingstocks.com and Daytradingrobot.com.   A 3rd website - Equitypromoter.com - was used to offer their services as stock promoters, claiming that they could "rocket" a stock’s price and increase its volume by sending out newsletters.  The Hunters drew in nearly $1.9 million in fees from known or suspected stock promoters - and, of course, none of this was disclosed to newsletter subscribers.

"The Hunters used the anonymity of the Internet and the promise of easy riches to prey on investors.  While touting their supposed breakthrough investment technology on two websites, the Hunters were racking up fees as stock promoters through a third." -- Thomas Sporkin, Chief of SEC Office of Market Intelligence.

Promoting to the Stock Promoters. On Equitypromoter.com, the brothers marketed their newsletter subscriber list to penny stock promoters and boasted, "One email to this list of people rockets a stock price."  The Hunters were in turn paid to send selected penny stock ticker symbols to their subscribers, who were misled to believe that the stock "picks" were the product of the robot.  The Hunters sent out their newsletters near the beginning of the trading day, and the price and volume of the promoted stocks spiked dramatically as newsletter subscribers rushed to purchase shares.  However, the stocks typically fell precipitously shortly thereafter, leaving investors with shares worth less than they had purchased them for earlier in the day. Home 'Downloadable' Version. For an additional fee of $97, subscribers thought they were getting a downloadable version of the stock picking program.  However, the software actually was designed to just deliver users a stock pick supplied by the brothers.  In soliciting bids in 2007 from free-lance coders to create the software, Alexander Hunter wrote that the software should "not actually find stocks at all.  It should connect to my database and simply request any new stocks I have put in."  He bluntly explained that the software "is almost a ‘fake’ piece of software and needs to simply appear advanced to the user." SEC Charges and Proposed Sanctions. The Hunters were charged with violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The SEC is seeking disgorgement of all ill-gotten gains with prejudgment interest, and financial penalties. SEC Staff Credits. Investigation by Adam Schoeberlein.  Litigation will be led by Robert Dodge. For further details, go to:  [SEC PR 12-72, 4/20/12] and    [SEC Complaint].