04 Feb

Twitter in muddy waters: hoax moves stock price 25%

Tweet

Identifying twitter fraud

The financial world is increasingly using social media platforms like Twitter. In fact, Twitter recently started to support the cashtag, a hashtag where the # is replaced by the dollar sign – like $AAPL, for example.

However, the dramatic negative impact that a single tweet by a small account can have became very clear on Wednesday, 29 January. An account posing as Muddy Waters, the influential equity research firm founded by Conrad Block, posted the following tweet about Audience Inc ($ADNC), a Nasdaq-listed US manufacturer of computer chips.

$ADNC AUDIENCE the noise suppression company being investigated by DOJ on rumoured fraud charges Full reort to follow

— Conrad Block (@Mudd1waters) January 29, 2013

As a result, the stock price plummeted by 25%. And, those behind the hoax lost no time taking advantage of the market’s reaction by buying low and selling soon after when the share price recovered.

$ADNC There is NO report. This is a hoax. MW does not know this company.

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— MuddyWatersResearch (@muddywatersre) January 29, 2013

How PeerReach discerns fraud from the real thing

The Verified status on Twitter is typically reserved only for VIP accounts with 100k followers or more, or for clients buying advertising space at Twitter Inc.  In the past, the number of followers was more indicative of the trustworthiness of an account, but it’s become more commonplace to buy followers, and it’s cheaper, too – 1000 followers cost less than 10 dollars.

PeerReach enables you to diffentiate real accounts from fake ones by means of an algorithm which looks at followers from you own expertise area. For example, for the official account of @muddywatersre we have the following:

PeerReach identifies that Muddy Waters is influential in Finance and Business, as one might expect from their official account. The profile page shows that one of the most reputable finance bloggers @zerohedge is following @muddywatersre. When it comes to the hoax account, PeerReach focuses on its followers. Since none of them have any authority, PeerReach can identify that there are no expertise areas found for @mudd1waters, so the account is fake. This hoax would have been detected by PeerReach no matter how many followers the perpetrators had purchased.