SEC: “We allege that Aly tried to fool the markets from a computer in Pakistan”

SEC alleges that Nauman A. Aly made false filings that led to his now-blocked profits.

A trader based in Pakistan – or controlling a computer from there – has tried to profit after allegedly manipulating the price of a publicly traded stock in the U.S. through the use of false statements in regulatory filings, and used call options to take a position in the underlying stock, but was blocked by a court order from withdrawing profits, according to a complaint by the Securities and Exchange Commission (SEC).

 

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.

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The agency announced Tuesday that it had obtained a court order to freeze the profits of the trader, Nauman A. Aly, whose activities were traced to a computer in Pakistan, after the false filings caused the stock price in which the trader held 1850 stock options to spike artificially by more than 25% within minutes – leading to the allegedly illicit profits of more than $400,000 that are now blocked.

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Mysterious regulatory filings

“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,” said Andrew Ceresney, Director of the SEC Enforcement Division, commenting in the SEC statement.

The regulatory filings that contained the alleged false statement by Aly claimed that he and six Chinese investors had obtained 5.1 percent of Integrated Device Technologies (IDT), a Silicon Valley-based chip maker traded on the Nasdaq under ticker IDTI. Coverage by the Wall Street Journal in April noted mysterious regulatory filings that had been made that month from the group of investors and cited IDT’s response as it was unaware of a “credible bona fide offer.”

Options used for stock position

The 1,850 call options had cost Aly $18,500, according to the SEC, indicating that he paid a premium $10 per contract, which gives the holder the right to buy the underlying shares at a specific strike price.

With each option contract controlling 100 shares of the underlying company, the combined position was for 185,000 shares, and after the aforementioned stock price spike, this position resulted in more than $425,000 in profits in Aly’s brokerage account. The court order was issued in Manhattan in a New York federal court, as per the SEC statement.

The complaint by the SEC charges Aly with violating federal securities laws, including antifraud provisions, section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, as well as Rule 10b-5, as per the SEC announcement.

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