A Tweet From Someone Posing As Short-Seller Carson Block Sent A Stock Tumbling 25% Today

(Reuters) - Shares of Audience Incplunged more than 25 percent in a matter of seconds on Tuesday afternoon before quickly recovering after false reports were posted on social media site Twitter saying the specialty chip maker was being investigated for fraud.

"Audience noise suppression company being investigated by DOJ on rumored fraud charges Full report (sic) to follow later," one of the hoax tweets said.

The tweets, which carried the handle Conrad Block @Mudd1waters, appeared to come from short-selling firm Muddy Waters, but that was not the case. The hoax tweets also had a photo identical to the picture on the Muddy Waters Twitter page.

Muddy Waters' founder is named Carson Block.

"There is NO report. This is a hoax. MW does not know this company," Muddy Waters later tweeted on its actual Twitter page.

Diane Vanasse, a spokeswoman for Mountain View, California-based Audience, said the company was aware of the hoax but she declined further comment.

Nearly 800,000 shares in the stock traded on Tuesday by 3:15 p.m. EST (2015 GMT), or about eight times the volume of 108,000 shares over the past 25 days.

The sharp spike in volume could be partly due to computer algorithms set up by traders to scan the Internet and news wires for any mention of Muddy Waters, among other names, so they can short the associated stock symbols, said Jamie Lissette, founder of The Hammerstone Group.

"It's good to some degree, because it gets people to realize that we can't just have a computer doing something like that just based on 'Muddy' and a symbol," he said.

Lissette, said people at his Westport, Connecticut-based firm, which operates discussion forums for investors, figured out the hoax within seconds because they saw how few followers Conrad Block @Mudd1waters had on Twitter. On Tuesday afternoon, the fake Block had 11 followers, while the real Muddy Waters Twitter site had 7,593 followers.

Volume in Audience's stock picked up at about 2:19 p.m. and shares fell sharply, from about $12 a share to a low of $8.87 a share at 2:21 p.m. Trades took place on a number of exchanges, according to Thomson Reuters time-and-sales data.

In that two-minute period, about 300,000 shares changed hands, accounting for nearly half of the day's volume, before the stock was halted at 2:22 p.m. by Nasdaq OMX for a five-minute period. At its low, the stock was down 25 percent from the previous close of $11.85 a share.

Shares of Audience, which is due to report its quarterly results on Thursday, closed up 4.5 percent at $12.38 on Tuesday afternoon.