Ten members of international stock manipulation ring charged in Manhattan | Hacker News Reader

Ten members of international stock manipulation ring charged in Manhattan

justice.gov

300 pointsmzs172 comments

Wow, this looks like a pretty serious manipulation game they were playing:

> First, the defendants and their co-conspirators secretly amassed control of the vast majority of the stock of certain publicly traded companies that were traded on the over-the-counter (“OTC”) market in the United States. Second, the defendants and their co-conspirators then manipulated the price and trading volume for these stocks, causing the share price and trading volume to become artificially inflated, through coordinated trading and false and misleading promotional campaigns that they funded.

I'm curious about which stocks were actually involved.

I'm also curious how much they profited on this scheme, and how much capital they had to amass to get it started. It seems like a big investment and a lot of hard work by a lot of people! It's too bad they were using it to defraud people.

Is this the same issue: https://www.nsnews.com/bc-news/vancouver-stock-promoter-davi...

If so, it appears at least $145 million.

Bad link, but a Canadian publication may have converted into CAD$ which will juice the number by ~26%

> The securities that the defendants and their co-conspirators sought to manipulate were issued by small companies, were thinly traded, and typically traded at less than $2 per share. These publicly traded shell companies frequently had few, if any, actual assets or actual business operations. While on paper the defendants and their co-conspirators had no connection to these companies, in reality they exercised substantial control, including installing management at the companies, financing the companies’ operations, and funding payments for attorneys in order to prepare public filings with OTC Markets Group, Inc. and the Securities and Exchange Commission (the “SEC”). In order to attract investor interest, the defendants and their co-conspirators, at times, caused private businesses to be merged or “vended” into the publicly traded shell companies. The private businesses were often in industries likely to attract the investing public’s interest

Wow, yeah. So not the normal pump and dump (buy, astroturf the stock, sell), but a full on fraud ring.

_Yawn_. They caught a few small-fish bad guys. While I'm glad they're going down (from my limited information on the subject) this pales in comparison to the active harm the SEC perpetrates against the average joe on a daily basis.

I should be able to invest in _whatever I want_ no matter my net worth. It's my goddamn money and they have no right, after taking almost half of it, to then tell me that I can't spend it as I please. The worst part is I'm _paying_ (via taxes) for them to then tell me what I can't do.

Nah. It's in society's interest to keep confidence in the markets up, because that's how you maximize total resources available for investment and economic growth. That confidence requires vigorous protection of investors, including the ones that think they're too smart to need protection.

It's no coincidence that the US has strong enforcement and is also a top international destination for investment. If anything the SEC and the CFTC should be more vigorous, and I'm happy to pay to support them.

If you personally really are too smart to need protection, they broadened the accredited investor definition last year, so there are a variety of ways to meet it: https://www.investor.gov/introduction-investing/general-reso...

Society does not need higher and higher markets. In many ways it is the illusion of economic growth and treated as such. The brain and resource drain to financialization of everything from industries that actually produce something will be looked back upon poorly in the future.

You're mixing some things up. Yes, excess financialization is bad. But that doesn't mean we need markets to become ineffective and scam-filled.

Nah, you’re coping hard for the existing system. All the established players need to pay, deeply.

I'm fine with a lot of the established players paying deeply. I think our economy is egregiously over-financialized, devoting incredible amounts of time and brainpower to zero- and negative-sum activity.

However, that in no way suggests I would be in favor of making it easier for grifters to fleece the rubes. Indeed, I favor strongly regulated markets partly because that reduces the rewards for parasitic activity.

letting ordinary people invest in what they please does generate alot of harm for individuals who are indeed too stupid to spend their money wisely. But it also oppresses that class who didn't happen into a $1M.

I'm a college educated, 26 year old programmer. I don't have a million in assets yet and it effects my ability to trade on margin and invest in private or OTC offerings, run an arbitrage bot and a million other things. Using a million dollars in assets as your rationale for whether someone is smart enough to do those things is classist.

You can spend $187 to take the Series 65 exam to prove that you know what you're doing and become an accredited investor that way - unlike the Series 7, you do not need your employer to sponsor you.

Wow, didn't know about this. Thanks! Slightly peaved once i read over the outline of the test tho.... linked below but series 65 assumes and prepares me to give advice on these matters. It includes estate planning and a whole slew of sections on the ethics of giving advice.

Why do i have to be qualified to give advice to unlock my own life first? And how can i just pay my way out of knowing all of this if i inhereted a $1M?

https://www.nasaa.org/wp-content/uploads/2016/02/Series-65-T...

I think the theory with having that much money is that either you have the knowledge or you can afford to hire someone who has it.

It's true that the Series 65 is more than one would need for solo investing. But the alternative was for them to come up with some sort of new test for the very small number of people who want to get into opaque, illiquid, high-risk investments. This seems like a pretty reasonable compromise.

Paternalistic nonsense.

I, not anyone else, need big daddy government to protect me.

We are the dominant global power in decline, our recent excursion into the nanny state is evidence against not for your hypothesis.

It's definitely not nonsense. Strong markets require strong regulation.

As an example, I used to write software for a company that traded derivatives. The markets we were on all had extremely strong internal regulation. Everybody who traded knew not to fuck with the exchanges. And that's what made them great places to trade: you could trust the outcomes.

It's very similar with investing. Investors are putting in money in exchange for a piece of something with clear risks. The murkier the risks get, the harder it is to get investment money. If, e.g., half of NYSE stocks were scams, investors would put in a lot less money, because their risks would go up, and that risk would apply to every stock in the exchange, because bad actors would of course try to make scams look like good companies.

So it really isn't about you or your daddy issues. It's in the NYSE's interests to keep scammers stocks off their exchange. It's also in the interest of most people who list or trade on that exchange. The same pattern applies more broadly to national markets as well.

I could have sworn I read a NYT article about tracking strange price fluctuations and these shell companies who at times would buy and absorb other companies… some of these shell companies were very shadowy/ hard to get information on. A few seemed to have random people listed as CEO (real people who had other jobs, like a gym teacher at a high school), and they refused to respond to questions from NYT.

Penny stock pump-and-dump schemes are very common. You've probably got hundreds of emails in your spam folder trying to pull it off.

not really. go ahead and try to convince a stranger to buy a stock. way harder than it sounds, way harder now than 20 years ago.

> I'm also curious how much they profited on this scheme, and how much capital they had to amass to get it started. It seems like a big investment and a lot of hard work by a lot of people! It's too bad they were using it to defraud people

"the defendants, collectively, made over $100 million by orchestrating ‘pump-and-dump’ stock manipulation schemes"

It's also a rather international bunch. Wonder how they all found each other.

> CURTIS LEHNER, a/k/a “Santa,” a citizen and resident of Canada, and COURTNEY VASSEUR, a/k/a “Black Water Resource Management,” a/k/a “Black Water,” a/k/a “Cyrill Vetsch,” a/k/a “Arctic Shark,” a/k/a “Oscar Devries,”

Well he wins the most silly names accumulated award from the list.

Penny stocks have super low floats and huge spreads so they are ripe for manipulation.

but liquidity is a problem. you still have to cash out. Also, greater signal to noise ratio, so abnormal trades still stick out easier.

> Wow, this looks like a pretty serious manipulation game they were playing:

It's a basic pump and dump. Nothing new nor interesting. It's been done for decades. There have been many movies on it - boiler room being one.

My first thought was: https://en.wikipedia.org/wiki/The_Wolf_of_Wall_Street_(2013_...

> While on paper the defendants and their co-conspirators had no connection to these companies, in reality they exercised substantial control, including installing management at the companies, financing the companies’ operations, and funding payments for attorneys in order to prepare public filings with OTC Markets Group, Inc. and the Securities and Exchange Commission (the “SEC”). In order to attract investor interest, the defendants and their co-conspirators, at times, caused private businesses to be merged or “vended” into the publicly traded shell companies. The private businesses were often in industries likely to attract the investing public’s interest

Slightly more interesting than your average pump and dump.

> It seems like a big investment and a lot of hard work by a lot of people! It's too bad they were using it to defraud people.

A great deal of the financial industry uses a lot of money and brainpower to play zero or negative-sum games. The more egregious of those negative-sum games are eventually made illegal, and some of the people playing them get punished. But speaking as somebody who used to write software for financial traders, it's a relatively short trip from "zero-sum game that is currently legal" through "negative-sum game that could well be legal" to "negative-sum game where we think we won't get caught".

It's true that one can societally justify a fair bit of that effort by pointing at things like more liquid markets, reduced trading costs, more accurate pricing, and the like. But approximately nobody trading for a living gets into the business because they care about any of those things enough to devote their lives to them. They're there to make money, and things like marketplace sanctions, regulatory investigations, and criminal enforcement are just another part of the cost-benefit analysis.

When I was in the industry floor trading was still the focus. One slow day at the Chicago Board of Trade there was a guy in a polar bear suit walking around the trading pits. One trader turns to another, says, "I'll give you $100 if you punch the polar bear." The second one shrugs, takes the money, walks over, and punches the bear. Turns out the person in the mascot suit was wearing glasses, so they end up with a cut on their face and blood trickling down. It also turns out that the bear was there to raise money for the zoo, and some CBOT bigwig was on the board of the zoo. If I recall rightly, the punching trader was banned for life. The colleague who told me this story just smiled and, referring to the $100 gained, said, "Bad trade."

I'm sure that there are plenty of people in the industry who look at these 10 guys and don't say, "What an outrage against the investors," or "I'm shocked that they'd tarnish the name of our industry that requires public confidence to function", but instead just smile and say, "Bad trade."

I used to work on the tech side of finance too. The hedge fund where I worked had a number of PIPE related violations where they ended up eventually settling and paying a fine without admitting guilt. For them it was just the cost of doing business. Breaking the rule and profiting minus the cost of the fines would just be a "good trade" to them.

"I'll give you $100 if you punch the polar bear."

Sounds like a story for a sequel to "Liar's Poker"!

And the name of the book: "Bad Trade"

For a while I knew guys that worked at hedge funds. Their whole thinking was about beating the competition and screwing as many people as they could while not being caught. They openly admitted that the taxpayers were stupid bailing out the industry in 2008 and kind of laughed at it. It’s a terrible industry and it’s shocking we allow them to run the country.

I mean to be fair, bailing them out, was also bailing us out. Banks can borrow some of people's money to fund mortgage loans. It just happened many loans at the time did so, and soured due to irresponsible lending. If they didn't bail them out, and you had 20k deposited in a bad bank; good chance it was simply gone. Bailing out the banks, guarantied that the innocent people got their deposited money back.

The bailout was required to keep the financial system running which keeps literally everything else running. Supply chains would have broken down overnight without the availability of capital. If the major financial firms had shut down it would have had much worse effects than people losing their savings.

You are describing a hostage situation. I would hardly consider that a healthy economy nor something worth defending.

We are the hostages.

That's fine, there were other options, we could have bailed the banks out financially to keep the economic wheels turning, and convicted a few bank executives to send a message that there are real world consequences to a group who are far too comfortable with fines being the cost of doing business.

Too big to fail? Dubious, but ok.

Too big to jail? No. Throw a CEO behind bars and the finance industry keeps on going but it scares the shit out of others who would misbehave.

Convicted them of what? Or maybe you don't care?

If we take the example of blending junk rated mortgage backed securities with AAA rated securities then selling the whole lot as AAA securities, fraud seems to be an obvious starting point.

What you describe is exactly the issue, because there's no "obvious fraud". You need to understand these instruments, simply:

Banks didn't deceptively mix mortgages (which isn't fraud, anyway) and sell them to unassuming buyers. They constructed portfolios of mortgages (assuredly some good, some bad), a third-party rated those new financial instruments as AAA without fully accounting for risks, and sophisticated buyers purchased those instruments, also without fully understanding the risks.

If anything, the blame should be on the pension funds and large institutions who purchased these things and who pay people large salaries to manage this money. But I have a hard time seeing fraud in this process.

I mean, you can read this in The Big Short. Characters like Michael Burry read the prospectus' for these securities and could see what was in them, thought much of it was crap, and made their investment decisions based on that. Anyone who purchased the instruments had the same opportunity, and in the case of pension funds the obligation to do so.

Everyone simply thought “real estate only goes up.” In valuing the mortgage, the credit worthiness of the borrower was secondary to the value of the home, and the data still bears out half the story. In rising real estate markets mortgages simply don’t default. Problem is, everyone forgot real estate can go down.

I don’t think you understand securitization or bond ratings.

and in its wake would be left space for more resilient structures to emerge.

i’m not saying “let it collapse”: a government has a duty to protect its own citizens of course. but i do think the myopic view which subsidizes a system once it becomes too big to fail runs counter to long-term prosperity by making the local optima more trapping than they would otherwise be.

It’s a myopic view to not throw supply chains into turmoil? This would be like letting your production service go down completely and instead of trying to bring it back up first you decide this is the perfect time to refactor it.

the myopic view: of or focusing on only the present. never did i say the antidote is to take a hyperopic view. obviously the appropriate view will lie somewhere in between. i even went out of my way to clarify that the extreme hyperopic view is not what i advocate (my second sentence). it's only my point that we leaned (continue to lean) further to the myopic direction because we don't really understand (or appreciate) the extent to which this impacts things over any other timescale.

(Apologies for the misinterpretation; thanks for clarifying)

No bailout weren’t required. We shouldn’t have support their risky behavior by bailing them out. They and their counterparties deserved to lose their shirts. Instead the consumers who took did imprudent cash out refinances lost their shirts. Wall Street firms deserved the same fate for their bad choices, but instead Wall Street got nailed out.

It’s nice to say don’t bail them out — until the ATMs go dark.

> and you had 20k deposited in a bad bank; good chance it was simply gone

If the bank was FDIC insured (nearly all US banks are), or a credit union that is a member of the NCUA (nearly all US credit unions are), the customers are insured up to $250k per insured account type.

https://www.fdic.gov/resources/deposit-insurance/faq/

https://www.ncua.gov/files/publications/guides-manuals/NCUAH...

Bailing them out does not mean bailing them out with zero consequences. Regulators have a lot of levers to pull there and should have used that. Splitting them up, taking them over outright, strengthening postal banking, loan forgiveness, banning instruments, they could have easily used the chance to negotiate the banks into making painful compromises that would have greatly benefited society. But they didn't and just gave them free money instead.

Those are all possible but they would have hurt the US financial dominance on the world stage. A lot of those decisions are ultimately based on imperial goals, not on the wellbeing of the citizenry (in the near term anyway, I'm pretty sure the people making those decisions believe they are thinking long-term.)

They didn't want the US banks to be bought out by Asian or European interests.

Or they could have just not bailed them out. Just because the finance guys way they are the most important thing in the world doesn’t mean we have to believe them.

I totally agree with you, however when society at large is built on the back of such a belief, you can't just pull it out from under everyone overnight without major collateral damage.

I don’t disagree - I think Lehman Brothers was a great example that you can have a giant bank go under. The productive assets of Lehman were back at work within six months and the value destroying units disappeared. I think had the Fed/Treasury let Bear Stearns go bankrupt instead of making JPMC swallow them (same for BofA and Merrill Lynch) it might have ripped the band aid off, rather than dragging it out.

But importantly — bailing out the banks isn’t really bailing out the banks, it’s bailing out the banks’ creditors.

Bailing someone out should come with an ownership stake.

It seems an awful lot like the Wall Street explanation was "If you don't give us rich guys lots more money then poor people will lose money." Couldn't we have let the corrupt and incompetent banks go broke while giving money to the individuals who lost money? Like, bailout retail instead of Wall Street?

> Like, bailout retail instead of Wall Street?

That’s a nice sentiment, but on a practical level what does that really mean? Who do you want to cut checks to, and for how much? And more importantly why?

As a taxpayer, why should someone who lost money get mine? If some retail investor put money with one of your so-called “corrupt and incompetent” banks why should they be made whole with my money?

The ideal would be a universal basic income where if you make bad bets, you start back at the UBI level. There is no special bail out for someone based on how much they lose, simply a constant, level bailout for everyone.

There's no reason why the fed shouldn't insure deposits to 100%. Then badly run banks really could go bust with no risk to the general population.

look how much the stock market surged afterward and continues to surge. maybe not so dumb after all. No one really paid for it given that taxes didn't go up. it was paid with 0-2% yielding bonds and then later in 2011 turned a profit. It was not super-wealthy people who benefited from the market surge, even ordinary people with retirement accounts benefited, assuming they did not sell at the bottom.

You're about to find out who's going to pay for the massive bubble state that the market is in and has been in since 2008. It will be ordinary people.

It definitely won't be the bankers.

In the uk, we had (have) a decade of austerity caused by the “banking crisis” so we have suffered quite badly from it here

caused by the banking crisis. ok. But do you really thing Blair and Brown and war spending and no restraint at all on domestic government spending during the boom blowing out the debt had /nothing/ to do with what came next when the boom ended?

>>It was not super-wealthy people who benefited from the market surge

What facts are you basing that on?

The figures I see show:

From 2001 to 2016 the share of ownership of the top 10% went from 71% to 84%. As of 2013, the top 1% of households owned 38% of stock market wealth

"stock market surged"

Stock market is not the economy, you average citizen could be starving whule stock market could be all-time-high.

Bitcoin also surged

> No one really paid for it given that taxes didn't go up.

The US has settled for an equilibrium where things get paid for with debt an money printing, making it very confusing to work out who is paying for what. That isn't a reliable signal to use. Someone ate the massive losses that were being realised, no new wealth was created. It just isn't as clear who because the situation has been confused to the point where a simple connection can't be drawn.

Probably the damage is being spread amongst pensioners or something. Or, quite likely, the sort of people who eventually decided to vote for Trump. People who think they're getting a good deal don't vote for candidates like that.

> No one really paid for it

When the govt creates money out of thin air the value of the dollar drops aka inflation, all savers pay the cost.

Tax payers didn't have a choice!

To be clear tax payers bailed out the banking industry and borrowers/homeowners, not hedge funds. (I’m not defending them just saying they weren’t the ones with their hands out (that time))

Also almost all of the tarp funds were repaid within a pretty short number of years.

That’s not true. On the way up these funds take 20% cut on the profits. On the way down they give nothing back. It’s a one way function. So they indeed sqeeuzed public money (retail and pension funds).

You can't expect employees return vested stock when the company doesn't do well. The same applies to hedge funds as well.

Please explain how they were bailed out, which my comment was in reference to?

Sounds like you have a problem with their fee structure - but not sure where the connection with a bailout is.

Separately, you do realize that (generalizing) hedge funds typically charge fees annually and have high water marks, which mean if the fund declines in value they give back fees that have been accrued for that year, and that they don’t charge incentive fees again until they’ve recouped investor losses?

"Please explain how they were bailed out, which my comment was in reference to?"

Maybe they weren't directly bailed out but their counterparties got bailed which then saved them. For example, I bet if the AIG counterparties had had to accept a massive haircut (which they should have) then a lot of companies would have gotten in trouble. The whole mantra "creative destruction" got suspended when it reached the financial industry.

worked in chicago trading for years. that attitude is endemic.

punch means a knockout punch to face hard enough to break the lens of the glasses. would not want to piss that guy off

My sunglasses frame is hard plastic and would likely break with far less impact than the lens.

I had always imagined it as wire rims, where even if the lenses are unbroken you could get a bit of a gouge or a cut from the wire around the nosepiece.

Anyhow, it turns out that I may have heard an exaggerated version of it. This version merely has it as a bruise: https://www.google.com/books/edition/Traders_Tales/NyeVNsWvJ...

>"I'll give you $100 if you punch the polar bear."

Instead of me saying I don't believe anything about this story, let's have a thought experiment: how badly would you have to need $100 right here and now to punch someone hard enough to bleed, nevermind the consequences, to have it?

But yeah, I don't believe one bit of this.

Unfortunately there are some people who'll harm others for a reasonably small amount of money even if they've already got plenty. I've encountered people who'd do this even if they were comparatively well off.

As explained in the comment, the puncher didn't know that it would smash hidden glasses and bleed.

It was a dare, not a job. It's not about the payout, it's about the challenger having a little skin in it.

I believe it. I’ve met many people who would do far stupider things for $100.

You don't believe that boredom, entitlement, and poor decision-making occasionally combine to produce behavior like this?

This is middle school stuff. Plenty of adults act this way under certain circumstances.

For sure. Traders are (or at least were) a special breed. It was mostly young white men, a lot of them with quick reaction times and poor impulse control. The job required outsized self-confidence, and then rewarded it with a lot of money, which often turned into fast living. I worked with some who were pretty decent people, but the median trader on the floor then was an arrogant, braying jackass.

I can't prove that it was true, but I can prove that it was a story going around at the time (although this has it as $25): https://books.google.com/books?id=NyeVNsWvJHAC&pg=PA32&lpg=P...

Whether or not it actually happened, it's entirely believable. Traders, at least there and then, were huge gamblers. Anything, any time. Something I saw with my own eyes was a thing that happened when trading was slow. Somebody would get a clear plastic trash bag, declare a size of bill (e.g., $5 or $20), and walk around with it. People would write their name on the designated banknote and drop it in. Eventually they'd shake it up, draw one of the bills, and give the sack to the person named on it. I saw one of the cleaning staff win a bundle of cash this way.

Or another thing I saw happen. One night I went out drinking with our trading clerks. All of them were aspiring traders, and all of them quickly learned the numeric hand signals used to indicate bid-ask spreads. Sitting at a table with them and couple of random women picked up at the bar, I saw two of the clerks doing number signals back and forth as one of them was chatting up one of the women. When I asked later what was going on, they were betting on whether he was going to sleep with the girl that night.

And of course Michael Lewis's book Liar's Poker is named after the fondness traders have for a betting game: https://www.investopedia.com/terms/l/liars-poker.asp

So did it happen? I don't know. But I do know our CBOT clerks were buzzing about it at the end of the day, so I don't think it was just completely made up.

Just my perspective as working for a trading firm (and perhaps the difference comes from working at a relatively big, established shop), but the sentiment around here is that you do not fuck with the markets, you do not fuck with the feds/sec/finra, you do not fuck with your exchanges and you always always consult the armies of lawyers if you think there's even a slightest doubt of the legal & compliance aspects about what you're about to do.

Don't really see that wild west of a*hole trader attitudes anymore tbh

That's good to hear! I could imagine that a good chunk of the industry gradually got more professional as the trading pits went away. It certainly would have made being a big, loud guy less useful.

$AMC and $GME

I am sure they would have made more money just making fake YouTube crypto livestreams impersonating Saylor and Vitalik Buterin. No arrest risk either. I dunno why anyone would manipulate stocks or insider trade. Your adversary is the US federal government, the most powerful entity in the world with near unlimited resources at its disposal. Also, being busted for one trade means you will be busted for all of them because it's all recorded.

Criminals generally have poor risk v. reward assessment, even white collar ones. 5 guys work together to rob a bank..if they just put 1 year of work at a 30-50k/year at a legit job, they would have same amount with no risk. They are not the smart, hence crime.

Typically the stocks that trade in OTC markets (aka pink sheets) are for small or defunct companies not the kinds of big public companies you may be familiar with. Buying a lot of some penny stock, hyping it up, and then dumping it on people is not a particularly sophisticated or new way of defrauding people, though in this case the scheme was a little more involved. You don’t need billions of dollars to buy a lot of the shares of one of these companies.

Yeah OTC trading is almost exclusively fraud. It's the model for crypto trading. A knowledgeable investor has no reason to invest in OTC, and naive investors don't even know how.

I disagree with your blanket statement on fraud. Pink sheets are a portion of what trades OTC. There are other types of securities like F-shares (foreign listings that trade in USD) and other trusts.

GBTC: the only bitcoin fund in the US trades OTC. (NB: trades at a massive premium so you're better off trading the underlying)

OTC exists in all markets, it's called a "dark pool". It's funny how little people know about more traditional markets but everyone thinks crypto is full of fraud. If you guys did more stock trading you'd know how bad it is. A former chairman of NASDAQ called Bernie Madoff is literally a convicted ponzi scammer.

Some of us know that crypto must be full of fraud because there’s so much fraud in traditional markets, despite regulation and oversight that crypto doesn’t have at all.

For the common wo/man there is more oversight in open ledgers as compared to backdoor deals. You can of course trade on some shady sites registered in the Cayman Islands, or you can use a decentralized exchange where there can't be backdoor deals. In theory crypto would be a regulator's dream, since everything can be automated and remotely audited. However, for the very reason that it would make fraud harder to hide, there are going to be a lot of rich and powerful people against it. Firms like Citadel are happy and comfortable with the status quo.

I don’t think this theory of what financial regulators want matches the things they actually care about or considers that they already have access to the ledgers, or at least most of the important ledgers, even if the public doesn’t. I disagree with your opinion about levels of oversight.

I think this definition of OTC is a bit confused. OTC Markets is a company that runs platforms for trading the stocks that only trade OTC (ie not on public exchanges). It is also true that there are ways to trade other securities OTC (and dark pools are one) but I think the parent commenter was talking about activity in the stocks that only trade OTC. The nomenclature is pretty stupid though.

This is the type of stuff regulators are effective against, in grand scheme of things quite meaningless activity and enforcement. And affecting those who no one should even be touching without very good reasons or deep understanding...

Pump and dump is as old as the stock market. What is more impressive is the they got involved at the corporate level, getting private companies to merge into OTC shells as well as issuing official SEC filings in target industries (probably blockchain or crypto in recent years).

Press release says they made $100m since 2015.

You’d be shocked by the trash equities that are, check QKLS (no idea what it is) but it has market cap of less than $10k. Sure we could but the whole thing for not a ton more. $1m would be plenty.

>I'm curious about which stocks were actually involved. I'm also curious how much they profited on this scheme, and how much capital they had to amass to get it started.

The clue is in the very extract you posted.... "certain publicly traded companies that were traded on the over-the-counter (“OTC”) market in the United States"

OTC shares are the bottom of the barrel shares, too illiquid to be dealt with via the exchanges and so traded via market makers instead.

Which then answers your second question. With illiquid shares you don't need much capital or to make much effort to make a profit in questionable ways.

I haven't read the detail, but I imagine they were basically running a coordinated pump & dump.

Every time a report like this comes out I wonder if the stock market is of any actual value to society. One answer people have given me is that companies can use it to raise money for future ventures, but is that actually true? Most of the times I hear of IPOs they seem like cash outs rather than raising capital.

I can’t help but think that this now looks like pocket money compared to the amount of fraud going on in the cryptocurrency market.

.. which in turn is also pocket money compared to some Federal programs around the world, institutional use of retirement funds, inflated property values and insider loans.. all absolutely without one bit of cryptocurrency in them. smell the coffee, fraud is everyday

Ransomeware wouldn’t exist to the same degree without crypto. Crypto’s killer app is quite obviously fraud and illegal activity.

Looked another way, it may make our security systems more robust. Much rather have to pay money to some hacker to get my data back then wait for some future where a nationstate does it to cause harm.

My goodness wait until all this machine learning we've heard about happening with PPP loans starts to peel back the onion.

Lots of shell companies out there...

...which is pocket money compared to the federal reserve teasing the rate increase for the last 12 months while the stock market is whipsawing and mopping up excess money from the retailers.

Dude this rabbit hole goes way deeper than one might think. Insider trading at coinbase ?: https://app.finclout.io/t/x3p3G27

Well, the smart contract, or lack of smart contract allows it, so it must be legal, right?

The law is quite clear. The question is if it includes "alternative tradable assets" i.e. shitcoins.

https://www.sec.gov/Archives/edgar/data/1164964/000101968715....

I agree, just being a bit tongue in cheek there.

problem is that it's very hard to cash out. monero for instance.

lol it's not hard. people keep saying this. exchanges process insane volume even when taking into account churn volume. There are hundreds of exchanges. The odds are almost 100% you can process anything.

Nowadays Chainalysis has done a great job tracking and tainting crypto through all the exchanges.

not all exchanges do Chainalysis , not all fraud is picked up by it, not all exchanges will act on fraud.

I agree i depends the location, the U.S exchanges MUST comply to it though.

the order books are very thin. if you tried to cash out $100 million on monero it would collapse prices.

Monero's Market Cap is 4,2B & Volume was $164M today so... Kinda.

but also, no one moves that kind of money without thousands of microtransactions, plus the arbitrage bots start to feed when there's alot of volume making it more stable than the normal financial system.

crypto is huuuuge. I mean, the market cap is $1.5 trillion alone. That is easily more than all OTC stocks combined. Then you have crypto companies like Coinbase and Binance, so another hundreds of billions.

OTC in US is 12.6T. Big crypto fan, but we are currently at around .01% of the total financial system.

1.5/12.6 = 12%

Thankfully I think the total market cap of OTC stocks worldwide is closer to ~100T so crypto is only 1%. Still a massive amount when you think about it.

OTC is small compared to bonds and other markets.

To prove it we need a source of that.

If you found out about such a ring and got visibility into what they were doing, and used what you discovered to profit at their expense (without doing any of your own manipulations, i.e. just buying and selling), would you be in trouble?

I suspect that if you knew about the scheme, and executed trades as a result of that knowledge, you would probably run afoul of this?:

https://www.law.cornell.edu/uscode/text/18/1348

No, you wouldn't be executing the fraud.

Reading the statute that way would make companies like https://en.wikipedia.org/wiki/Hindenburg_Research illegal.

Matt Levine said it best: "Everything everywhere is securities fraud."

https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...

You can’t take it literally in this sense. Among other things, investors cannot commit securities fraud, only executives can. Als, relatedly, Matt Levine’s take regarding insider trading may be relevant here.

> investors cannot commit securities fraud, only executives can.

The very story you're commenting on is an example of a securities fraud scheme (pump and dump) that can be committed by investors.

This definitely isn't true. Anyone lying to you in connection with a sale of securities in return for financial gain is committing securities fraud. According to any reasonable reading of the statute books, or any of hundreds of insider trading cases that do not involve executives.

Ah, fair enough. I guess it would come down to the particular circumstance in which you were made aware?, i.e: https://www.law.cornell.edu/uscode/text/18/371

Either way, I wouldn't be comfortable touching either situation with a 20 foot pole.

> Either way, I wouldn't be comfortable touching either situation with a 20 foot pole.

This is the right call, I think.

They make the alleged fraud public though, do they not? The comment you’re replying to seems to suggest a strategy of intentional non-disclosure. I think that’s a material difference when it comes to analyzing the legality of those two approaches.

They take a short position before going public, to profit off the drop.

You're not going to be able to short random OTC stocks. While it's technically possible, there isn't going to be a market providing shares for these podunk fraudulent issues.

You’d probably be better off reporting them under Dodd-Frank whistleblower provisions. These apply not just to insiders reporting fraud, but also independent analysis which

use[s] the publicly available materials to show important insights about the possible securities laws violations that are not apparent from the face of the materials

https://www.sec.gov/page/frequently-asked-questions-whistleb...

Obviously you would do that too. But Bernie showed us how much good reporting people does.

If you found out about such a ring, got visibility into what they were doing, and didn't immediately seek competent legal advice - you would be an idiot.

That's a given.

I don't need a lawyer to tell me I am an idiot. I already know that.

I'm guessing the answer to this question is predominantly determined by the price of your lawyer.

I wish these indictments would list the companies involved. I read the indictments and they refer to the companies as Company 1 - x. I also wish they would list the actual promotional material the defendants used. It would be very helpful to investors to see which articles are paid for by pump and dumpers, which authors write such articles, which websites publish them, etc.

too risky. any named companies' share price would plummet immediately.

yes even though they were the victims. that would be unwarranted

These companies have no real value to begin with and have been fully taken over by the fraudsters.

See section "relevant entities" https://www.sec.gov/files/litigation/complaints/comp-pr2022-...

The entire OTC stock market is a swamp filled with alligators. Market manipulation and scams are rife, and many of the underlying companies are little more than scams. The SEC and Justice Department only find a fraction of the problems. There is the potential to make huge gains but individual investors should be very careful and do extensive research before trading.

I recall there being a Pizza place in New Jersey or something that was a publicly listed company on the OTC worth tens of millions of dollars. Prime example.

Close; it is a deli.

https://www.nytimes.com/2021/06/02/magazine/your-hometown-de...

And recently the company announced they will be merging with a bioplastics firm:

https://www.bloomberg.com/opinion/articles/2022-04-04/elon-m...

I wonder if these guys were on r/wallstreetbets, I am seeing more and more blatant pump-and-dump schemes, this time in claiming "short squeeze" and writing call options that never materialize.

WSB is basically a marketing forum for pump and dump schemes now. There are hundreds if not thousands of entities trying their hand at it. I mean - even Elon Musk is doing it. Remember what Michael Burry said before the 2008 crash: one hallmark of a bubble about to collapse is fraud running rampant. It happened in the late 1920s, in the runup to 2008 and it's happening again now.

> ... one hallmark of a bubble about to collapse is fraud running rampant.

Famous shortseller Jim Chanos says the same.

There was one couple of days back about a grilling company: New account, evoking emotions, hundreds of awards in couple of minutes, promising short squeeze.

Other than that the whole subreddit is just retailers losing all their money.

If i recall that post was called out pretty quickly, the top post on the sub for that day was informing others about the scam thread.

I'm not saying WSB hasn't got a moderation/quality problem but some people on that sub aren't total idiots.

Only large American banks and financial institutes are allowed to play that game.

And US legislators too ;)

This reminds me of Varga's organization in season 3 of Fargo: https://en.wikipedia.org/wiki/Fargo_(season_3)

They'll be fined 1M and sentenced to 90 days house arrest.

> COURTNEY VASSEUR, a/k/a “Black Water Resource Management,” a/k/a “Black Water,” a/k/a “Cyrill Vetsch,” a/k/a “Arctic Shark,” a/k/a “Oscar Devries,”

What stocks? Where is this information and why is it not on the top of this list or in the filings?

Wow some people from my area in BC, crazy stuff

This sounds Wolf-of-Wallstreet like.

Is this worse than what citadel did? How is that going? Anyone in prison yet? /s

RONALD BAUER was arrested in the United Kingdom. CURTIS WILLIAM LEHNER, COURTNEY VASSEUR, and JULIUS CSURGO were arrested in Canada. ANTHONY KORCULANIC was arrested in Spain. PETAR MIHAYLOV was arrested in Bulgaria. Finally, DOMENIC CALABRIGO was arrested in the Bahamas. The United States intends to seek the extradition of BAUER, LEHNER, VASSEUR, CSURGO, KORCULANIC, MIHAYLOV, and CALABRIGO to the United States. CRAIG AURINGER, a citizen of Canada and resident of the United Kingdom, HASAN SARIO, a citizen and resident of Turkey, and DANIEL FERRIS, a citizen of the United Kingdom and resident of Monaco, were also charged and remain at large.

The arm of justice is looong. I hope Turkey and others resist the extradition orders though and say "too bad" or as a joke not "until you investigate pelosi". Yeah I hate crime as much as the next guy, but the US cannot play world police forever.

Extradition treaties work in more than just the direction of the US, and serve a functional purpose, for the same reason that foreign nationals who commit crimes in a jurisdiction CAN be adjudicated in that jurisdiction AND/or in their home jurisdiction.

you think Bahamas, Turkey, Spain cares that much? I can see maybe Canada complying

Bahamas and Spain, definitely. Turkey, probably, though maybe not.

It always depends on several factors, including how much of a trade relationship runs between the two, or regional defence agreements (among other things).

And while IANAL, I suspect given the relationships we have, the Bahamas almost certainly would, Turkey would be contingent, and Spain would likely be the most resistant for non-economic (capital crimes) as EU states tend to be, but for economic ones...almost certainly extradite someone back to US remand (as has happened before).

I'm not convinced. Historically you've been able to pick up British citizens at will but nothing much is forthcoming in return.

Still waiting on Anna Sacoolas whenever you get around to it.

"I'm not convinced"

I'm happy for you.

When I was at Uni, the previous extradition agreement between the US and UK was lopsided but still the UK was able to get US citizens extradited under sufficient evidence. As far as I know, when the agreement was re-negotiated in the early 2000s little changed, and looks like there is at least some evidence (at least from the 2003-2012 period) to confirm this from the UK home office: https://www.whatdotheyknow.com/request/details_of_numbers_of...

As far as the Sacoolas case, I didn't realize I was on the hook for sending her back to the UK to spend some time in the dock.

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