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On Heals of Cryto Problems, SEC Charges Eight Social Media Influencers in $100 Million Stock Manipulation Scheme Promoted on Discord and Twitter

Washington D.C., Dec. 14, 2022 —

The rise of crypto fraud hasn’t prevented the traditional stock pump and dump scheme from being attractive to modern criminals as was evident today when the Securities and Exchange Commission today announced charges against eight individuals in a $100 million securities fraud scheme in which they used the social media platforms Twitter and Discord to manipulate exchange-traded stocks.

According to the SEC, since at least January 2020, seven of the defendants promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord. These seven defendants allegedly purchased certain stocks and then encouraged their substantial social media following to buy those selected stocks by posting price targets or indicating they were buying, holding, or adding to their stock positions. The complaint alleges that when share prices and/or trading volumes rose in the promoted securities, the individuals regularly sold their shares without ever having disclosed their plans to dump the securities while they were promoting them.

“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 following seven individuals were charged with securities fraud:

Name                           State of Residence      Twitter Handle

Perry Matlock               Texas                            @PJ_Matlock            

Edward Constantin       Texas                           @MrZackMorris

Thomas Cooperman    California                     @ohheytommy

Gary Deel                     California                     @notoriousalerts

Mitchell Hennessey      New Jersey                  @Hugh_Henne

Stefan Hrvatin              Florida                         @LadeBackk

John Rybarcyzk           Texas                           @Ultra_Calls

The complaint further charges Daniel Knight (Twitter Handle @DipDeity), of Texas, with aiding and abetting 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.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Texas, seeks permanent injunctions, disgorgement, of criminal profits, prejudgment interest, and civil penalties against each defendant, as well as a penny stock bar against Hrvatin. Criminal charges against all eight individuals also were filed in a parallel action brought by the Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert on Social Media and Investment Fraud. Investors can find additional information, including the warning signs of fraud, at Investor.gov.

Understanding Public Companies – Sentinel Financial Education Series

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies. But do you really understand what the market is about? What public companies are? How they are traded?

The Sentinel Financial Education Series is designed to answer questions, bring understanding, inform and educate. So…

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

Public Companies

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies.

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

A private company also can become subject to public reporting requirements by merging with a public shell company.  This process is called a reverse merger.  As with any investment, investors should proceed with caution when considering whether to invest in reverse merger companies.

As mentioned, we view companies as public if they are subject to public reporting obligations.  There are instances, however, where the securities of a company that does not regularly report business and financial information to the public are nonetheless traded on smaller public markets.  Investing in these companies is riskier as there can be little public information to allow investors to make an informed investment decision.

Transparency and Continuing Disclosures

A public company’s disclosure obligations begin with the initial registration statement that it  files with the SEC.  But the disclosure requirements don’t end there.  Public companies must continue to keep their shareholders informed on a regular basis by filing periodic reports and other materials with the SEC.  The SEC makes these documents publicly available without charge on its EDGAR website.  The filed documents are subject to review by SEC staff for compliance with federal securities laws. 

Following are some of the reports that may be filed by U.S.-based public companies.  Foreign companies that file reports with the SEC may file different types of reports.

  • Quarterly Reports on Form 10-Q.  Public companies must file this report for each of the first three quarters of their fiscal year.  (After the fourth quarter, public companies file an annual report instead of a quarterly report.)  The quarterly report includes unaudited financial statements and information about the company’s business and results for the previous three months and for the year to date. The quarterly report compares the company’s performance in the current quarter and year to date to the same periods in the previous year.
  • Current Reports on Form 8-K.  Companies file this report with the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or high-level officer), and preliminary earnings announcements.  For more, see our How to Read an 8-K.
  • Proxy Statements.  Shareholder voting constitutes one of the key rights of shareholders.  They may elect members of the board of directors, cast non-binding votes on executive compensation, approve or reject proposed mergers and acquisitions, or vote on other important topics.  Proxy statements describe the matters to be voted upon and often disclose information on the company’s executive compensation policies and practices.
  • Additional Disclosures.  Other federal securities laws and SEC rules require disclosures about a variety of events affecting the company.  These include proposed mergers, acquisitions and tender offers; securities transactions by company insiders, and beneficial ownership by a person or group that reaches or exceeds five percent of the company’s outstanding shares.    

Public Disclosures Protect Investors

Our federal securities laws are based on public disclosure by companies of meaningful business, financial and other information.  Public disclosure by companies serves to advance the mission of the SEC.

Relyfe Programming Can Help

Giving to help in Ukraine? Get your money where you mean it to go!

As ever, when criminals spot a crisis in the world, they are there to take advantage. It’s true after natural disasters, when scammers set up fake charities that look and sound like real ones to try to get your money. And it’s true now that millions of people want to support the Ukrainian people. If you’re one of them, the Sentinel fully supports you and asks you take a moment to make sure your generosity really benefits the people and groups you intend.

Here are some places to start:

  • Check out the organization. Search online for the name of the group, plus words like “review,” “scam,” or “complaint.” See if others have had good or bad experiences with the charity. And see what charity watchdog groups say about that organization.
  • Slow down. You don’t have to give immediately. It’s a good idea to do some research first to make sure your donation goes where you want it go.  
  • Find out how your money will be spent. Ask, for example, how much of your donation will go to the program you want to help? If someone calls to ask to donate, they should be able to answer those critical questions.
  • Know who’s asking. Don’t assume a request to donate is legitimate because a friend posted it on social media. Your friend might not personally know the charity or how it spends money.
  • Look at fees and timing, especially if you’re donating through social media. Be sure to make sure what organization your donation goes to, check whether there are fees, and how quickly your money gets to them. And if you can’t find the answers quickly, consider donating in other ways.

Your generosity can make a difference any time you give — especially if you take a few minutes to make sure your donation goes where you mean it to. Learn more at ftc.gov/charity.

Initial article by Jennifer Leach, Associate Director, Federal Trade Commission

Five Questions To Ask Before Investing With A Stockbroker

Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.

Question 1: Is the seller licensed?

Con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Smart investors check the background of anyone promoting an investment opportunity, even before learning about opportunity itself. While it’s usually safe to trust larger firms with more established reputations – relying on their internal oversight to keep you safe – even the biggest and best of brokerages have loosed wolves among their flocks, albeit unknowingly.

Researching brokers: Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.

Researching investment advisers: The Investment Adviser Public Disclosure website provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms.

Researching SEC actions: The SEC Action Lookup – Individuals allows you to look up information about certain individuals who have been named as defendants in SEC federal court actions or respondents in SEC administrative proceedings.

If you are not sure who to contact or have any questions regarding checking the background of an investment professional, call the SEC’s toll-free investor assistance line at (800) 732-0330.

Question 2: Is the investment registered?

Any offer or sale of securities must either be registered with the SEC or exempt from registration. Registration is best because it provides investors with access to key information about the company’s management, products, services, and finances. Smart investors always check whether an investment is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.

Question 3: How do the risks compare with the potential rewards?

The potential for greater returns comes with greater risk. Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes. Investments with greater risk may offer higher potential returns, but they may expose you to greater investment losses. Keep in mind every investment carries some degree of risk and no legitimate investment offers the best of both worlds. Many investment frauds are pitched as high return opportunities with little or no risk. It’s usually best to ignore these so-called opportunities. If you truly believe you smell a fraud, report them to the SEC, your local state securities licensing agency or state’s attorney general’s office.

Question 4: Do you understand the investment?

Many successful investors follow this rule of thumb: Never invest in something you don’t understand. Be sure to always read an investment’s prospectus or disclosure statement carefully. If you can’t understand the investment and how it will help you make money, ask a trusted financial professional for help. If you are still confused, you should think twice about investing.

This particular question, “Do you understand the investment?” has broader application. Savvy investors apply it across the investment spectrum, not just in their stock market considerations. Real estate, cryptocurrency, NFTs, the bond and commodities futures markets are all unique in their own ways, all offering potential rewards, all presenting their own potential pitfalls. If you don’t understand them, don’t invest in them until you do. Keep safe!

Question 5: Where can you turn for help?

Whether checking out an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a great advantage when it comes to investing wisely. Make a habit of using the information and tools on available on reputable public sites, and take advantage of the securities regulators’ websites. If you have a question or concern about an investment, get a second opinion from a different broker or investment advisor. Remember, too, that you can contact the SEC, FINRA, or your state securities regulator for help in a crunch.

A final piece of advice: Don’t be afraid to ask questions, of the person offering the investment and others.

Any broker or advisor who fears questions, or deflects without actually answering them, either doesn’t understand the investment or doesn’t want you to understand it. The most successful Ponzi scheme of all time (excepting Social Security), was run by Bernie Madoff. A large part of his success was found in his practice of scaring investors away from asking questions by implying that if they didn’t trust him they could take their money elsewhere.

Don’t be afraid to ask your questions, and don’t be afraid to leave if you don’t get, don’t understand – or don’t like – the answers.

February 8, 2022 – Mike Spillan, Editor

IRS Abandons Facial Recognition Plans

February 7, 2022 – Mike Spillan, Editor

WASHINGTON — The IRS announced it will transition away from using a third-party service for facial recognition to help authenticate people creating new online accounts. The transition will occur over the coming weeks in order to prevent larger disruptions to taxpayers during filing season.

During the transition, the IRS says it will quickly develop and bring online an additional authentication process that does not involve facial recognition. Instead, The agency will also continue to work with its cross-government partners to develop authentication methods that protect taxpayer data and ensure broad access to online tools.

“The IRS takes taxpayer privacy and security seriously, and we understand the concerns that have been raised,” said IRS Commissioner Chuck Rettig. “Everyone should feel comfortable with how their personal information is secured, and we are quickly pursuing short-term options that do not involve facial recognition.”

Unfortunately, privacy experts have expressed additional concerns about the IRS’ “work with it’s cross-government partners” as well.

Still, the transition announced today should not interfere with the taxpayer’s ability to file their return or pay taxes owed. During this period, the IRS will continue to accept tax filings, and it has no other impact on the current tax season. People should continue to file their taxes as they normally would.