On Twitter, the men touted themselves as financial sages in a community known to fans as FinTwit. Two of them launched a Discord server, Atlas Trading, amassing more than 230,000 members who avidly followed their stock tips. They appeared on podcasts that soared in popularity with the bull market and showed off luxury cars on Instagram.
But it all came crashing down this week, after the US Securities and Exchange Commission and the department of justice accused the eight men of running a modern version of a “pump and dump” stock scheme that bilked investors out of more than $100 million. The alleged fraud scheme was outlined in court documents filed and unsealed in recent days.
According to the SEC, seven of the men purchased stocks and then encouraged their followers to buy them too “by posting price targets or indicating they were buying, holding or adding to their stock positions”.
When the prices went up, the conspirators would quickly sell their shares, without disclosing that to their followers, the SEC said. Many were penny stocks, the term for low-cost, volatile shares in tiny companies that are not widely traded, making them ripe for manipulation.
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The eighth man, Daniel Knight of Texas, who goes by @DipDeity on Twitter, was charged with aiding and abetting the scheme by promoting and interviewing the others on his podcast, “Pennies: Going in Raw.”
According to the SEC, Knight “also traded in concert with the other defendants and regularly generated profits from the manipulation”.
His co-host, Mitch Hennessey (24), who goes by @Hugh_Henne and has more than 235,000 followers on Twitter, was among the seven other men charged, according to court documents.
‘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’
The other six men are named in court documents as Edward Constantin, 38, of Montgomery, Texas; Perry Matlock, 38, of The Woodlands, Texas; John Rybarczyk, 32, of Spring, Texas; Gary Deel, 28, of Beverly Hills, California; Stefan Hrvatin, 35, of Miami; and Tom Cooperman, 34, of Beverly Hills.
“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, the chief of the market abuse unit in the regulator’s enforcement division, said in a statement released by the SEC.
The SEC is seeking permanent injunctions and civil penalties against each of the men, as well as the return of their profits, according to the court documents filed in US district court for the southern district of Texas.
The department of justice and the US attorney’s office for the southern district of Texas have also filed criminal charges against the men. Documents unsealed on Tuesday showed that a federal grand jury had indicted all eight men on a charge of conspiracy to commit securities fraud. Those documents indicate the total profits from the scheme were closer to $114 million (€108 million) or more.
According to court documents, the scheme began around January 2020. “To their legions of followers on social media, the eight defendants have, for years, promoted themselves as trustworthy stock-picking gurus,” the SEC said. “In reality, they are seasoned stock manipulators.” – This article originally appeared in The New York Times
