SEC Charges Eight Social Media Influencers in $100 Million Stock Manipulation Scheme Promoted on Discord and Twitter
The Securities and Exchange Commission announced on December 14, 2022 charged seven individuals (Perry Matlock (@PJ_Matlock), Edward Constantin (@MrZackMorris), Thomas Cooperman (@ohheytommy), Gary Deel (@notoriousalerts), Mitchell Hennessey (@Hugh_Henne), Stefan Hrvatin (@LadeBackk), and John Rybarczyk (@Ultra_Calls) )with securities fraud and an eighth Daniel Knight (@DipDeity) with aiding and abetting the alleged securities scheme worth upwards to $100 million.
According to the SEC, the defendants charged with securities fraud promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord, and then leveraged that influence by allegedly purchasing certain stocks and then encouraging their substantial social media following to buy those same stocks.
The complaint alleges that these same individuals regularly sold their shares without ever having disclosed their plans to dump the securities while they were promoting them whenever there was beneficial movement in price or trading volume.
“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 SEC alleges that Mr. Knight aided and abetted 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 them with a forum for their manipulative statements. Knight also traded in concert with the other defendants and regularly generated profits from the manipulation.
It is clear that the SEC is looking to emerging communications forums to reign in exaggerated or outright fraudulent communication. It is important for market participants, whether dealing in traditional securities or digital assets, to consider the compliance ramifications of their communications content, policy, and perception.
