NEW YORK - Prominent short-seller David Einhorn raised eyebrows last month when he popped up on Twitter to disavow that he had tweeted about Herbalife Ltd.
"Apparently I have a twitter impersonator," said the hedge fund manager, adding that he had no plans "to tweet about stocks."
What set off Einhorn, founder of Greenlight Capital, was a post by a since-suspended Twitter account called @Greenlightcap that read: "The $HLF tug of war will in the end come down to who has more money to play with. I wouldn't want to be in Bill's shoes right now #TeamIcahn."
That may have misled people into thinking that Einhorn - whose infrequent tweets under @davidein tend to be about poker - was picking sides in the battle between two other big-name investors, Carl Icahn and Bill Ackman, who have opposing positions in Herbalife.
Einhorn isn't the only shortseller who has been impersonated on Twitter, which has become an important source of information for many investors. In late January, shares of Audience Inc and Sarepta Therapeutics Inc plunged following tweets that were purported to be from short-selling researchers.
"Twitter pump and dump schemes are obviously something for the market to be concerned about, even if they are just a new way for people to do schemes that have been done forever," said Keith McCullough, chief executive officer at Hedgeye Risk Management in New Haven, Connecticut. He uses Twitter and has more than 22,000 followers.
In such hoaxes, anonymous users set up accounts with names that sound like prominent market players, issue negative commentary, and spark massive declines. The selling that follows shows how the rapid spread of information on social media can make for volatile trading, and is a warning to investors who trade on news before fully verifying the source.
The FBI monitors Facebook and Twitter, and told Reuters in November that social media will be a big part of securities fraud. The US Securities and Exchange Commission's website has a warning that swindlers can use social media "to appear legitimate, to hide behind anonymity, and to reach many people at low cost." And the Financial Industry Regulatory Authority has issued social media guidelines to broker-dealers, requiring that they keep records of usage.
In January 2012, the SEC charged an advisor with attempting to sell fictitious securities through LinkedIn Corp, an online social network catering to professionals.
"As some violators have learned the hard way, using social media to defraud investors leaves an electronic trail of footprints for our investigators to follow," said John Nester, a spokesman for the SEC in Washington, D.C.