SEC: Robot Stock Picker Is a Fraud

A pair of British twin brothers fooled thousands of U.S. investors who believed a fictitious "stock-picking robot" called Marl they hyped on the Internet could spot penny stocks set to soar in price, the Securities and Exchange Commission said in a civil lawsuit.

The pretend-robot's picks were really stocks the brothers were allegedly being paid by stock promoters to tout, the SEC said. The SEC charged the brothers, Alexander John Hunter and Thomas Edward Hunter, with defrauding 75,000 largely U.S. investors who paid at least $1.2 million for a newsletter subscription and home "robot software" used to access Marl's stock picks, according to a civil complaint that the SEC filed in U.S. District Court in Manhattan on Friday.

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The brothers, now 21 years old, started the alleged scheme in 2007, when they were just 16 years old, the SEC said.

Alexander Hunter pled guilty last November to U.K. criminal charges that he traded illegally. But the U.K. authorities dropped criminal-fraud charges initially brought against both Hunter brothers, as well as charges against Thomas for alleged illegal trading, an SEC official said.

Eric Bruce, a lawyer representing the brothers, didn't respond to a request for comment.

The SEC first received complaints from alleged victims who bought subscriptions to the brothers' newsletter back in 2008. The agency didn't file its fraud charges until now because it wanted to make sure it had gathered all the facts in the case, an SEC official said.

The SEC is seeking to fine the brothers and force them to return payments to alleged victims.

"The Hunters used the anonymity of the Internet and the promise of easy riches to prey on investors," Thomas A. Sporkin, chief of the SEC's Office of Market Intelligence, said in an SEC news release.

The SEC said the brothers, who live in England, marketed Marl to investors on two websites they operated, doublingstocks.com and daytradingrobot.com, as a computer trading program that could spot penny stocks about to surge in price.

The websites made pronouncements about Marl's exceptional analytical abilities, according to the SEC. Among other things, they said Marl could pick out distinct trading patterns "in split second timing" and could process 1,986,832 mathematical calculations per second, according to the SEC. And they said Marl continually improves his stock-picking. "The longer Marl is allowed to run on a computer … The More Advanced He Becomes!", the websites allegedly claimed, according to the SEC.

The website said trading stocks based on Marl's picks earned investors 34% a week, according to the complaint.

The brothers said they named Marl after its supposed inventors, Michael Cohen and Carl Williamson, according to the SEC, falsely saying Mr. Cohen had built a vaunted computer stock-trading model for Goldman Sachs Group, Inc., the SEC said.

The newsletters were typically sent out by email around the time U.S. stock markets opened. Since Marl selected penny stocks that were often thinly traded, the robot's picks often sent the stock prices surging before they fell back to earth, causing investors losses, the SEC said.

The home version of the robot software didn't perform any analysis but rather spit out stock tickers from a database the brothers controlled, the SEC said.

While running the stock-picking computer software, the brothers operated a third Internet site, equitypromoter.com, where they marketed themselves as stock promoters, claiming their newsletter could rocket the price of stocks, the SEC said. They earned at least $1.87 million from known or suspected stock promoters, the SEC said.

All three websites allegedly operated by the brothers appear to be shut down.

But tales of remorse from duped investors remain on the Internet.

A November 2007 post on the blog sketoac that warns about the alleged scam elicited a flood of responses from rueful investors.

"i got to this blog too late .. and got suckered into the phony newsletter," one person wrote.

Another person wrote he lost $1,000 by subscribing to the newsletter sold on doublingstocks.com.

Several bloggers wrote that they signed up for the newsletter but received Marl's picks after the markets opened and the share prices were rising.

"I don't know if it is a scam or not…I do know that just about every pick they have made has gone up, but the emails are showing up too late. I guess that's the scam part…what do you think?" one post read.

Write to Jessica Holzer at jessica.holzer@dowjones.com

Corrections & Amplifications The Hunter twins targeted by a Securities and Exchange Commission lawsuit are now 21 years old. An earlier version of this article said they were 20.