Eight individuals are facing charges in a $100m securities fraud scheme in which they used the social media platforms Twitter and Discord to manipulate exchange-traded stocks. The individuals are being charged by the Securities and Exchange Commission (SEC) and the Department of Justice’s (DOJ) Fraud Section in two separate actions.
According to the SEC’s complaint, starting in January 2020, seven of the eight defendants promoted themselves as successful traders and attracted hundreds of thousands of followers on Twitter (over 1.5 million Twitter followers, according to the DOJ) and in stock trading chatrooms on Discord.
The group is alleged to have used both platforms as part of the charged scheme to promote false and misleading information about the securities that they later pumped and dumped. The SEC claims that the seven individuals allegedly purchased certain stocks and encouraged their followers to buy them by posting price targets or indicating they were buying, holding, or adding to their stock positions.
“The defendants used social media to amass a large following of novice investors and then took advantage of their followers by repeatedly feeding them a steady diet of misinformation.”
Joseph Sansone, Chief, SEC Enforcement Division Market Abuse Unit
Nonetheless, when the promoted securities share prices and/or trading volumes rose, the defendants often sold their shares without ever disclosing their plans to dump them.
“As our complaint states, the defendants used social media to amass a large following of novice investors and then took advantage of their followers by repeatedly feeding them a steady diet of misinformation, which resulted in fraudulent profits of approximately $100m,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit.
“Today’s action exposes the true motivation of these alleged fraudsters and serves as another warning that investors should be wary of unsolicited advice they encounter online.”
Promoted in podcast
The SEC is charging these seven individuals with securities fraud:
- Perry Matlock, Texas (PJ_Matlock – Twitter handle)
- Edward Constantin, Texas (MrZackMorris)
- Thomas Cooperman, California (ohheytommy)
- Gary Deel, California (notoriousalerts)
- Mitchell Hennessey, New Jersey (Hugh_Henne)
- Stefan Hrvatin, Florida (LadeBackk)
- John Rybarczyk, Texas (Ultra_Calls)
The SEC’s complaint also charges Daniel Knight, Texas (DipDeity), with aiding and abetting the alleged scheme, among other things, for co-hosting a podcast where he promoted many of the others as expert traders. The SEC claims that he provided them with a forum for their manipulative statements. Knight also traded in concert with the other defendants, which he regularly generated profits from.
The SEC’s complaint was filed in the US District Court for the Southern District of Texas, and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant, as well as a penny stock bar against Hrvatin.
DOJ charges
In the parallel action by DOJ, the Department and the US Attorney’s Office for the Southern District of Texas filed criminal charges against all eight individuals. According to DOJ’s charges, the group profited to the tune of at least $114m from the alleged securities fraud scheme, which went on from January 2020 to April 2022.
“Financial crimes like securities fraud may not be violent, but they certainly are not victimless.”
James Smith, Special Agent in Charge, DOJ
The DOJ has charged all defendants with one count of conspiracy to commit securities fraud.
Constantin is also being charged with three counts of securities fraud and one count of engaging in monetary transactions in property derived from specified unlawful activity. Matlock and Deel are both charged with five counts of securities fraud. Rybarczyk is charged with four counts of securities fraud, and Hrvatin, Cooperman, and Hennessey are charged with two counts of securities fraud each.
“Securities fraud victimizes innocent investors and undermines the integrity of our public markets,” said Assistant Attorney General Kenneth A Polite, Jr. of the Justice Department’s Criminal Division. “As these charges demonstrate, the department will continue to prosecute those who defraud investors by spreading false and misleading information, including over social media, to line their own pockets.”
Could face prison
If convicted, each defendant faces a maximum penalty of 25 years in prison for conspiracy to commit securities fraud, and each charged count of securities fraud.
Constantin also faces a maximum penalty of 10 years in prison for engaging in unlawful monetary transactions, if he’s convicted.
“Financial crimes like securities fraud may not be violent, but they certainly are not victimless,” said Special Agent in Charge James Smith.
“The eight individuals arrested today are accused of costing investors, specifically their social media followers who trusted them, millions of dollars by a ‘pump and dump’ market manipulation scheme they allegedly carried out on popular social media platforms. As the lead agency investigating corporate fraud, the FBI was able to uncover their alleged manipulative activity and expose their coordinated pattern of securities fraud.”
