The US government just clamped down on a prominent online financial fraud. A federal grand jury and the Securities and Exchange Commission have charged eight men with allegedly operating a stock pump-and-dump scheme on Discord and Twitter between January 2020 and April 2022. They reportedly used their social media presences (including a combined 1.5 million Twitter followers) to artificially inflate the value of stocks, only to sell their shares without disclosing their plans. They made a $114 million profit off the campaign, the Justice Department said.
In addition to tweets, the group supposedly used a Discord server (Atlas Trading) to share misinformation about stocks. One participant, Daniel Knight, also co-hosted a podcast that apparently played a role in the fraud. He brought some of the others on his show and falsely portrayed them as experts, according to the SEC.
All eight are facing at least one charge of conspiracy to commit securities fraud. Edward Constantinescu (aka Constantin), Perry “PJ” Matlock, John Rybarczyk, Gary Deel, Stefan Hrvatin, Tom Cooperman and Mitchell Hennessey are facing additional charges that revolve around securities fraud and (in Constantinescu’s case) unlawful monetary transactions. The SEC has further charged Knight with aiding and abetting the scheme.
The conspiracy and fraud charges carry a maximum sentence of 25 years in prison for each count, while the transactions charge against Constantinescu carries a 10-year maximum. The SEC charges could add financial penalties, including disgorgement of the ill-gotten profits.
The nature of the manipulation isn’t surprising. The meme stock saga on Reddit showed that online communities can influence share prices in the right circumstances. However, the charges suggest a trend — fraudsters now see social media as a viable way to fool many investors with relatively little effort. Don’t be surprised if you see more cases like this going forward.