- U.S SEC charged eight influencers with running a securities fraud scheme that generated around $100M.
- Investment scams are arising, with influencers masquerading as “successful and professional” traders.
- According to an SEC report, the Defendants have been manipulating hundreds of thousands of followers since 2020.
The United States Securities and Exchange Commission (SEC) has filed a lawsuit against eight social media influencers associated with a $100 million securities fraud scheme. The list includes co-founders, podcasters, and YouTubers. The criminal complaint and civil lawsuit were filed in the U.S. District Court for the Southern District of Texas.
According to details from the SEC’s press release, the influencers had branded themselves as successful traders since 2020, gaining hundreds of thousands of followers on Twitter and large communities in stock trading chat rooms on Discord. They had accrued more than two million followers across various social media platforms, with numerous photos showcasing exotic lifestyles. The culprits had convinced followers to buy certain stocks by” posting price targets or indicating they were buying, holding, or adding to their stock positions.”
However, the influencers still needed to disclose their plans to dump the securities while actively promoting them when share prices went red. The influencers allegedly gained a profit by pumping the stock prices and then selling once they rose, earning about $100 million in total, the SEC claims.
SEC Says The Culprits Took Advantage of Their Followers
“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,” Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit said.
“Today’s action exposes the true motivation of these alleged fraudsters and warns that investors should be wary of unsolicited advice they encounter online.”
The defendants include; Daniel Knight, alias “DipDeit; Edward Constantin, who went by the online handle “MrZackMorris”; Thomas Cooperman, alias “ohheytommy”; Gary Deel, who goes by “Mystic Mac” or “notoriousalerts”; Mitchell Hennessey, who goes by “Hugh Henne”; Stefan Hrvatin, who goes by “LadeBackk”; and John Rybarcyzk, alias “The Stock Sniper” or “Ultra_Calls.”
Investment Scams Today
The activities of fraudsters masquerading as influencers and celebrities to take advantage of naïve and eager citizens have only mounted as more people join the craze for supposed investments “guaranteed” to make rich quickly. Some influencers take advantage of the market demands, and by purchasing phony followers and interaction, they massively inflate their online influence to lure more users into elaborate scams.
Investors are promised high investment yields in return for small down payments or a chance to recoup money lost to other fraud schemes by paying a fee. Often, these programs are either pyramid or Ponzi schemes, pump and dump, or unsuitable financial products for which the investor has no use.
Today’s standard method is through which users are scammed of millions in crypto. There are thousands of tokens and coins in the digital market, many of which leverage the massive popularity of influencers to sway the opinions of netizens who do not know or are not willing to research into buying.
SEC Charges Against the Defendants
The SEC is bringing charges of permanent injunctions, disgorgement, prejudgment interest, civil penalties against each defendant, and a penny stock bar against Stefan Hrvatin.
As per the press report, the complaint also 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.” Daniel Knight had been in cohorts with the other six defendants and regularly received profit from the scheme.
Criminal charges 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.
As of Wednesday, some of the defendants’ Twitter bios now include disclaimers in an attempt to lighten the legal repercussions of their actions.
Edward Constantin’s account now reads, “All my tweets are my opinions. I’m still not a financial advisor. Parody account.” Mitchell Hennessey says, “Everything is my opinion…Not a pro. Not financial advice, probably do the opposite. Read disclosure before follow.”
Rybarcyzk reads, “DISCLAIMER: My tweets are NOT recommendations to enter a stock. – Ideas shared on Twitter are NOT buy or sell signals. DO NOT TRADE BASED ON SOCIAL MEDIA.”