The Securities and Exchange Commission charged eight people today in a $100 million securities fraud scheme in which they manipulated exchange-traded stocks using the social media platforms Twitter and Discord.
Fake Gurus
According to the SEC, seven of the defendants promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord since at least January 2020.
These seven defendants are accused of purchasing specific stocks and then encouraging their large social media following to buy those stocks by posting price targets or indicating they were buying, holding, or adding to their stock positions. However, the complaint alleges that when share prices and/or trading volumes in the promoted securities rose, the individuals regularly sold their shares without ever disclosing their intention to sell the securities while promoting 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 $100 million,” 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.”
The following seven people have been charged with securities fraud. Perry Matlock, Edward Constantin, Thomas Cooperman, Gary Deel, Mitchell Hennessey, Stefan Hrvatin and John Rybarcyzk.
Abetting Securities Fraud
The complaint also charges Daniel Knight (Twitter handle @DipDeity), of Texas, with aiding and abetting the alleged scheme by, among other things, co-hosting a podcast in which he promoted many of the other individuals as expert traders and provided a forum for their manipulative statements. Knight also traded in concert with the other defendants and consistently profited from the manipulation.
The SEC’s complaint, filed in the United States District Court for the Southern District of Texas, seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant, as well as a penny stock bar against Hrvatin. Criminal charges were also filed against all eight individuals in a parallel action brought by the Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas.
The SEC’s ongoing investigation is being handled by Andrew Palid, David Scheffler, and Michele T. Perillo of the Market Abuse Unit (MAU) in the Boston Regional Office, with assistance from Darren Boerner of the MAU, Stuart Jackson, Kathryn Schumann-foster, and Marina Martynova of the Division of Risk and Economic Analysis (DERA), and Howard Kaplan of the Office of Investigative and Market Analytics. Mark A. Gera, John Kachmor, Nitish Bahadur, and Raymond Tan in the Boston Regional Office referred the case to the Division of Examinations. David D’Addio and Amy Burkart of the Boston Regional Office will lead the litigation.
The SEC gratefully acknowledges the assistance of the United States Department of Justice’s Criminal Fraud Section, the United States Attorney’s Office for the Southern District of Texas, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.
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