Social media can be a place of invaluable resources and information for novice investors new to the market.
Twitter (TWTR), in particular, is a platform where some of the brightest minds in finance come to share their own thoughts and trade ideas with the rest of the financial Twitter community.
There is also the other side of Twitter, where charlatans with large followings take advantage of newbies in the classic Wall Street game of big fish eats little fish, according to a new Securities and Exchange Commission complaint.
"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.
The SEC charged the following with alleged securities fraud:
- Perry Matlock (Twitter handle: @PJ_Matlock - 340,000 followers), 38, of Texas
- Edward Constantin (@MrZackMorris - 551,000 followers), 38, of Texas
- Thomas Cooperman (@ohheytommy - 129,000 followers), 34, of California
- Gary Deel (@notoriousalerts - 140,000 followers), 28, of California
- Mitchell Hennessey (@Hugh_Henne - 237,000 followers), 24, of New Jersey
- Stefan Hrvatin (@LadeBackk - 150,000 followers), 35, of Florida
- John Rybarcyzk (@Ultra_Calls - 267,000 followers), 32, of Texas
The regulatory agency also charged Daniel Knight (@DipDeity - 171,000), 28, of Texas, with aiding and abetting the alleged fraud scheme by co-hosting a podcast in which he promoted other individuals as expert traders, providing them with with "a forum for their manipulative statements."
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The Alleged Scheme
The defendants would allegedly purchase certain stocks, then encourage their social media followers to buy those selected stocks by posting price targets, or indicating they they were buying, holding, or adding to their positions in a scheme that began in at least January 2020, according to the SEC complaint.
However, when share prices and/or trading volumes rose in the stocks they promoted, the individuals would sell their shares without disclosing their actions.
A classic pump-and-dump.
The SEC complaint, which was filed in the U.S. District Court for the Southern District Texas, seeks permanent injunctions, disgorgement (forfeiture of profits from the scheme), pre-judgement interest, and civil penalties from each of the eight accused individuals.
The regulators are also seeking a penny stock bar against Hrvatin, and criminal charges have also been filed in a separate, but parallel, action by the Department of Justice's Fraud Section and the U.S. Attorney's Office for the Southern District of Texas.
The eight defendants are associated with Atlas Trading, a forum based on the instant messaging social platform Discord.
Preying on the Ignorant
The group fashioned themselves as Wall Street insiders who were bringing the secret knowledge they gained from trading floors to the masses through their free Discord group Atlas Trading.
But in secret conversations on Discord voice chats that they believed were private, but which were actually being recorded, the group revealed their true intentions, according to investigators. The following alleged conversation was included in the complaint.
Knight: Get caught? . . . We’re robbing f*cking idiots of their money. . .
Cooperman:... 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.
"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," Sansone said.
