SEC charges crew of social media influencers with $100m fraud
Defendants allegedly 'discussed their scheme’ in recorded chats on Discord and Twitter that ‘they believed were private’
Eight braggadocious social media influencers fond of posing next to sportscars are facing charges from the US Securities and Exchange Commission (SEC) and Department of Justice (DoJ), who claim they manipulated their 1.5 million followers in order to help themselves to $100 million in "fraudulent profits."
The suspects, all men in their twenties and thirties, were charged with conspiracy to commit securities fraud in connection with a long-running, social media-based "pump and dump" scheme, a recently unsealed Texas federal grand jury indictment [PDF] and an SEC complaint [PDF] revealed.
Perry Matlock (38), Edward Constantin (38), Thomas Cooperman (34), Gary Deel (28), Mitchell Hennessey (23), Stefan Hrvatin (35), and John Rybarcyzk (32) are alleged to have carried out the scheme, "coordinating the acquisition of shares, promoting the shares to their followers, and dumping the shares for substantial profits," said the DoJ, which claimed they were "aided and abetted by Daniel Knight", aged 23, who co-hosted a popular stock-trading podcast with Hennessey that "provided a platform... to deceptively promote the stocks they intended to dump."
Constantin, tweeting as @MrZackMorris, is alleged to have run Atlas Trading, a stock-trading forum, on the social media platform Discord.
The SEC alleged the suspects used Twitter and Discord to manipulate exchange-traded stocks in a $100 million securities fraud scheme, detailing some pretty amusing excerpts from exchanges it claims took place between individuals in the group.
We're robbing f*cking idiots of their money. . .
The commission claimed the defendants sometimes discussed their scheme over Discord voice chats that they "believed were private, but which were in fact being recorded."
For example, the complaint alleged that on March 1, 2021, Knight and Cooperman discussed the group's alleged manipulation of the securities of GTT Communications, Inc, which at the time traded on the New York Stock Exchange under the ticker GTT.2.
Some extracts from the complaint follow below:
Knight: Get caught? . . . We’re robbing f*cking idiots of their money. . .
Cooperman: It’s so funny because I can see the . . . . I can like see the timeline of these. Like I get it [the ticker], I send it to Dan [Knight]. I know Dan’s on voice. Dan tells you guys. I see it go up more. Then I send it to Gary [Deel] and I see it go up like way more [laughter] . . . .
My other thing is too, is like alright, if we lose on one of these, we’ve won on like a hundred so . . . We gotta remember with these Ultra [Rybarcyzk] ones, they all do the same thing. It like spikes, comes down for a second— Knight: Then the scalpers get out, like Gary [Deel] gets out, then—
Cooperman: And then it goes f*cking bukoo, but no, that’s not only it. Like what he [Rybarcyzk] does is he alerts it, and then like five minutes later, all his little minions start like retweeting it and saying added with him, so it like builds the hype back up. It happens every single time. They have their shit down to a f*cking science, it’s crazy.
The SEC alleges Cooperman, Knight, and others were watching GTT's stock price and volume in real time during that conversation when an unidentified individual exclaimed, “Wow, big dump!”
Cooperman then commented that he understood that at least one of the primary defendants, Rybarcyzk, was dumping at that moment. He stated: “I can like see them in my head coming out of the candle. Like weee! [laughter] Weee!”
Knight responded, “Another banger call guys,” referring to the promotion.
Knight is then alleged to have made fun of Rybarcyzk’s followers (whom the SEC claims were losing money due to an alleged share dump by Rybarcyzk that crashed the stock price):
“And all his [Rybarcyzk’s] followers are like, ‘Uh, yo we can’t sell today, I don’t have any day trades left’.”
Knight’s mocking of Rybarcyzk’s followers elicited laughter. The group continued to mock Rybarcyzk’s followers.
Playing the role of one of Rybarcyzk’s followers, Cooperman asked: “Is this a swing?” eliciting laughter. Knight continued, imitating Rybarcyzk’s followers: “Please be a swing.”
The commission claimed in the complaint that the group "promoted themselves as trustworthy stock-picking gurus" to the "FinTwit" community, while in fact, they were "seasoned stock manipulators."
"FinTwit," sadly, is not a term made up by The Register to mock the stock shock rockers who transmit unfit wit, but is rather an existing term referring "to the community of Twitter users that regularly tweet about finance and the stock market." Yes, if you've not been on Reddit or Twitter lately, and you're feeling way too upbeat on a Thursday, that's where we are as a society.
The SEC went on to allege that the suspects identified stocks "ripe for manipulation," acquired substantial positions in these securities, and then recommended those stocks as good investments to their followers on Twitter, in online stock-trading forums, and on podcasts. "They encourage their followers to purchase the selected stocks, often claiming that they likewise have bought or intend to buy these stocks for themselves and hold them. Instead, the defendants sell their shares into the demand that their deceptive promotions generate."
The complaint included snapshots it claims are of the defendants posing in front of Lamborghinis and Ferraris, with statements that would convince "followers that acting on the Primary Defendants' recommendations would likely lead to significant wealth, and by falsely portraying their trading methods as accessible to anyone willing to learn."
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All eight were charged with conspiracy to commit securities fraud; Constantin was charged with three counts of securities fraud and a count of engaging in monetary transactions in property derived from specified unlawful activity; Matlock and Deel were both charged with five counts of securities fraud; Rybarczyk was charged with four counts of securities fraud; and Hrvatin, Cooperman, and Hennessey were each charged with two counts of securities fraud.
If convicted, each suspect faces a maximum penalty of 25 years in prison for conspiracy to commit securities fraud, the DoJ said. Constantin also faces a maximum penalty of 10 years in prison if he's convicted of engaging in unlawful monetary transactions.
"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." ®