SEC charges eight social media influencers in $100M stock manipulation scheme | Hacker News Reader

SEC charges eight social media influencers in $100M stock manipulation scheme

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220 pointsthm88 comments

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This is the list of people they've charged:

- Perry Matlock @PJ_Matlock

- Edward Constantin @MrZackMorris

- Thomas Cooperman @ohheytommy

- Gary Deel @notoriousalerts

- Mitchell Hennessey @Hugh_Henne

- Stefan Hrvatin @LadeBackk

- John Rybarcyzk @Ultra_Calls

- Daniel Knight (@DipDeity)

It's nice to see I don't know, much less follow, any of these people.

Similar feeling to when SBF went bust. Even though I'm heavily involved in the bitcoin space, I barely knew anything about him other than vague praise of his effective altruism ideals and more pro-crypto/anti-bitcoin stance and that he ran a seedy, off shore exchange. Only afterwards did a lot of the people I actually do follow and respect resurface their old criticisms of SBF, e.g. Jack Mallers in June, https://twitter.com/jackmallers/status/1536834021354786823

It's nice to get some confirmation that the people I follow and give attention to are worthy of it. TBD if that continues.

I didn't recognize a single one either.

Quick random search returns "articles" like this: https://dailycaller.com/2021/07/30/the-success-story-of-atla...

Somehow it vaguely reminds me of old timey snake oil sales copy. Things never really change.

Their a/k/a names listed in the complaint were so cringe I can’t even imagine the type of person who would think these guys gave solid investment advice.

I followed Zack Morris, but I and everyone knew he was a pump and dump runner. His tagline was "The pump never dies" or something.

I tried a handful of times to short his pumps right at the rug pull, but almost every single time, I lost my position due to a short squeeze.

I ended up losing around $10k, had I been able to hold my positions (more cash in my margin account basically), they would be HUGE wins, because almost every stock he pumped went to near $0 within a few weeks/months. But the poor people who kept the squeezes alive lost so much more when the bottom fell out.

The market can stay irrational longer than you can stay solvent.

I'm a noob when it comes to stock trading rules, but can someone explain how this is different than what Jim Cramer does on his show? Cramer has been exposed for knowingly giving people bad stock trading advice. Is it just that Cramer didn't do a blatantly obvious pump-and-dump like these influencers did?

Jim is most likely not trading the securities directly. The money he makes is from his tv contracts and other non-securities trading business probably. Maybe being paid by the companies to shill for them.

Need to ask the SEC he invest in the SJIM ETF if that ever happens. They do the opposite of what he suggests.

> Maybe being paid by the companies to shill for them.

That would be quite illegal if not disclosed.

A lot comes down to subtle language syntax. For instance, you can say "we target 12% returns," but you can't say "we guarantee 12% returns." You can say "we out-performed the market by over 3% a year for each of the past ten years," but you can't say "we're going to out-perform the market because we have the past ten years." You can say "company X is a great business, and the stock looks cheap here," but you can't say "company X is a can't miss investment and an automatic double at this price."

You also can't promote a stock or position and do the opposite. For instance, if you ran a popular YouTube channel, you can't buy stock X before you post about why you own it, then post the promotional piece, and sell your position into your listener's buying it. If you are paid by the company, you would have to disclose this too, etc.

This is only part of the issue ("Guarantees").

The far larger and more important issue is disclosure laws.

As the other guy posted, you cant recommend one thing and do another.

"we recommend you BUY XYZ" while you are holding a lot of shares in this and sell into the buy market you created.

You also cant offer recommendations without disclosing how you are compensated.

I'm Canadian and more familiar with its rules / regulations but Canadian rules are often best practices used globally.

https://www.iiroc.ca/news-and-publications/notices-and-guida...

Disclosure of financial interest (clause 3608(2)(ii))

A Dealer must disclose whether any person involved in creating the content of a research report has an ownership interest in the subject issuer’s securities. When disclosing ownership interests, a Dealer is not required to include information relating to administrative or clerical staff involved in preparing a research report.

Disclosure of remunerated services (clause 3608(2)(iii)) Clause 3608(2)(iii):

does not require duplicate disclosure from the individuals when the Dealer discloses the services, and excludes normal investment advisory or trade execution services, such as an investment account by the issuer.

Disclosure if making a market (clause 3608(2)(vi))

A Dealer must disclose if it is making a market in an equity or equity related security of the issuer. In addition, a Dealer must make the same disclosure in a fixed income research report if the Dealer is making a market in an equity or equity related security of the issuer.

How does this relate to advertising?

They're recommending people give their cash to buy a thing (I'm specifically thinking of the "Cash for gold" ads which are constantly playing on the conservative talk radio that our machinists listen to in the shop), while they're doing the opposite: giving away their gold to in exchange for your cash.

Either they're acting against their own self-interest, sacrificing their incorruptible, safe gold for the risky, inflationary fiat currency, or they're lying about what they believe.

This is the funny thing about the disclosure laws. The "influencers" may not have broken any trading rules, but their failure to disclose is an issue all to itself.

> Either they're acting against their own self-interest, sacrificing their incorruptible, safe gold for the risky, inflationary fiat currency, or they're lying about what they believe.

There is a lot to unpack here. But it comes down to this. You can advertise your services and not violate SEC laws, or you can do things which violate SEC rules.

As for buying gold for cash :

1) This isnt covered by the SEC, (perhaps the CFTC?)

2) your post about "fiat currency" vs gold is unclear. You are aware that they don't just buy bold bricks, but unwanted jewelry, etc as well?

If we replace "gold" with "used cars" does it work the same way? You are selling your unwated broken car which may be of some value to someone else.

I was talking about Merit Financial/Goldline, who relentlessly advertise buying physical gold bars and coins as a safe haven asset for people easily confused by the economy. They encourage listeners to put their IRA in physical gold instead of stocks, bonds, or $USD, and allow you to keep the gold you bought safely insured in their vaults (for usurious rates) for retirement.

I suppose you're probably right, their claim that they're superior to other securities and exchanges would not actually bring them under the jurisdiction of the SEC.

I'm guessing that kramer and everyone around him is under the radar for taking opposite trades to what he's pitching, otherwise it would be a farce.

Pump and dumpers get nailed to the wall because they sell while they are telling everyone to buy. They are not providing bad financial advise, they are defrauding people.

> kramer and everyone around him is under the radar for taking opposite trades to what he's pitching

Unless disclosed, this is illegal. (EDIT: Never mind, idioms.)

I believe kobalsky intended "under the radar" to mean "under surveillance", so as to ensure such TV personalities are not placing trades that contradict what they're pitching.

I am under the impression at least some media employers bar their finance presenters from investing in stocks due to appearance of impropriety and in extremes conflict of interest.

Yeah, I agree. "Under the radar" usually means "hidden from view" and "under a microscope" means "under heavy scrutiny". I think the poster above just got the wrong idiom.

Short for flying under the radar (outside its lower range). It's what warplanes do for real to avoid detection.

They also published false information about the stocks in order to justify why their followers should buy it.

They didn’t disclose they were selling. Specifically they cite, 1. taking positions then 2. telling their audiences to buy (long) the same stock and then the important part selling when volume and/or price increases without disclosing it.

Ex.

1. Buy crap stock “XYZ” with a low float (prone to volatile spikes with volume).

2. Tell audience to buy crap stock.

3. Sell crap stock.

That’s manipulation and the SEC don’t take kindly to it. Cramer presumably does long things he talks about, or doesn’t pretend he will, and isn’t immediately selling it after discussing it on his show.

> didn't do a blatantly obvious

For any crime it not being "blatantly obvious" is pretty essential to it not being prosecuted. I'm no fan of Jim Cramer, but he makes enough money just giving bad advice that there's no reason for him to also be secretly profiting from it illegally. In addition he's high profile enough that I'm sure plenty of people have looked into it hoping to find something.

But if he was secretly profiting form it illegally then that illegal activity would have to be made "blatantly obvious" in order for him to be convicted, and the federal government doesn't like prosecuting unless they're near certain of a conviction.

These influencers were performing an easy to observer and therefore easy to prosecute crime, which is why they are being charged.

It is all about how one discloses conflicts of interest with suggestions (aka ownership interests). Key phrase from the statement "without ever having disclosed their plans to dump the securities".

Cramer doesn’t invest in individual stocks, thus he has no conflicts of interest and wide 1st amendment protections. The important thing is to not lie about your financial interests. It is perfectly fine to take a short position, announce it, then proceed to trash the company’s management. It is fine to pump a stock if you disclose you have a position.

The key issue is:

“ the individuals regularly sold their shares without ever having disclosed their plans to dump the securities while they were promoting them.”

Crame gave to the world the Inverse Cramer ETF, which actually makes a lot of money.

> Crame gave to the world the Inverse Cramer ETF, which actually makes a lot of money.

Can you show me the returns of this inverse Cramer ETF?

As far as I can tell it hasn't been released yet, look for ticker SJIM. if this is true it makes the second part of your statement look like you just flat out made it up.

I believe the parent comment was joking about making money by consistently taking positions opposite to what Cramer recommends. That ETF doesn't really exist afaik, yeah.

https://unusualwhales.com/etfs

As it stands, shorting everything Cramer says to buy (and buying everything he says to short) has a +21% return rate.

Yes, it requires you to use your fingers and manually buy/sell individual stocks instead of buying a single ETF. But then it wouldn't be HN without needlessly pedantic users.

I'm a former project manager who did work for a major banks compliance team, that same bank had an equity research division as well and so i can shed some light here for you.

One of the biggest concerns is what you are doing in private vs what you are doing publicly.

So lets say "Big Bank" says "we recommend XYZ with a target price of $19.99 by end of year, our recommendation is BUY"

On the surface there is no issues with this, but lets say "BIG BANK" is LONG a million shares of XYZ.. Now you have a potential issue.

You are telling your clients to BUY (upward pressure on the stock) while you have a big bet that the stock will go up.

In the industry we refer to this as "talking your book" https://www.yourdictionary.com/talking-one-s-book

Over the years the rules have tighten when it comes to equity research and disclosing your position.

Now to the issue with what took place here - The individuals advocating the stock, how were they compensated? What is their position on those stocks?

Because this is UNCLEAR it is a violation of the SEC rules.

Lastly, one thing still bothers me about equity research is the rare "Sell" recommendation. Very few equity research departments ever issue a "Sell" recommendation..

In the 90s it was “Dan Dorfman” on tv. There started to be some wondering were people feeding him info so the stocks he talked about on tv would move. It’s subtle, “learned” vs “heard”

https://www.nytimes.com/1995/07/09/magazine/a-mover-of-marke...

Less blatant, and also has connections and influence.

>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. However, as the complaint alleges, 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.

They were literally pump-and-dumping. This is, to the letter, illegal. Cramer is not doing that.

These 'analysts' on CNBC are supposed to follow disclosure rules.

No laws against incorrectly predicting the movement of securities. There are laws to prevent pump and dump of securities for profit. If Cramer was giving price predictions that benefited him without disclosing his positions, he would be violating the law. It is necessarily illegal to provide guidance of stock movement if you hold the stock. You need to say what positions your holding. Short sellers do this all the time legally.

> is necessarily illegal to provide guidance of stock movement if you hold the stock

... unless you disclose your position?

I doubt Cramer personally invests at all these days. He likely goes through either a firm or a managed fund, providing even more shielding.

edit: yeah https://www.cnbc.com/2022/05/04/jim-cramer-how-he-invests-hi...

I don't think you even need to disclose your positions, you just can't have positions that are contradictory to the information that you disclose.

I'm rarely a cheerleader for the SEC, but their work this week alone has been marvellous. Delighted to see these guys brought to book.

They jumped the gun on SBF. Should have let him testify in congress. The timing makes it look like they didn’t want him to talk. May not be the case but it’s what it looks like.

Have seen this conspiracy theory propounded by several people now. Two things:

1) SBF refused to testify right before he was due to anyways: https://www.cnbc.com/2022/12/12/former-ftx-ceo-sam-bankman-f...

2) The charges he is looking at are so serious, I have a hard time believing it would matter that much whether he racked up one more charge of lying under oath

Edit: formatting

Plus, why let him "testify" and potentially spread misinformation, doing even more harm

> makes it look like they didn’t want him to talk

We know what he was going to say [1].

[1] https://www.forbes.com/sites/stevenehrlich/2022/12/13/exclus...

BASELESS conspiracy theory.

I didn't propose a conspiracy theory, just noticing suspicious, coincidental timing. Its was THE DAY BEFORE THE HEARING. A conspiracy theory would include why they wouldn't want him to talk (a la Esptein theories).

And its literally not "baseless" if you ask if its coincidental that he was arrested the day before he was supposed to testify, why not let the hearing come and go and if he was a no show then arrest him?

They are just questions.

Regardless, SBF was charged for conspiracy, fraud, collusion, etc. Why are any questions that would throw suspicion on other parties to the conspiracy immediately shut down?

Maybe they didn't want him to go in front of Congress because they were afraid Congress might grant him immunity. Given all the money he donated to both sides, it seems plausible to me.

I believe congress can only make recommendations, they can't actually pass any judgement from a hearing.

I looked this up before posting my comment. According to Wikipedia at https://en.wikipedia.org/wiki/Witness_immunity:

"In the United States, Congress can also grant criminal immunity (at the Federal level) to witnesses in exchange for testifying.[1]"

They can still make him do it now. Prison has zoom calls

not the same dynamic. Now his guard is up and will probably plead the 5th and be behind a team of lawyers.

The DOJ has a 95% conviction rate. SBF has confessed to illegal activity in his many interviews. His coworkers are believed to have cut deals. The new CEO is helping the feds, so they have expert testimony and access to all the material evidence.

It is over for SBF (barring a miracle). They weren't going to get anything from his congressional testimony.

Now hopefully they'll also go after crypto influencers.

Unreal the amount of scams and rugs and fraud committed by people with any semblance of influence in crypto.

Pump and dump is eternal. They just found a new way to do it.

Look these guys are clearly scumbags but anyone who reads anonymous twitter posts and invests on that basis without assuming everything is a pump and dump is going to lose all their money one way or another. I would guess that at least 95 percent of trades based on this crew knew full well this was a momentum pump and dump club and just hoped to ride the wave and get out before the suckers. Not tremendous pity for their losses.

> I would guess that at least 95 percent of trades based on this crew knew full well this was a momentum pump and dump club and just hoped to ride the wave and get out before the suckers.

So also send the message that people who coattail on a scheme like that will also face charges?

Ever heard of /r/wallstreetbets? People are getting eaten alive there.

I'm interested in if putting a disclaimer in your twitter bio will be used in court.

"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."

This disclaimer was in @Ultra_Calls description

That kind of thing generally doesn't work as far as I know. You can't just say you're not doing something to cancel out the fact that you are doing it.

Clearly shows that every social platform that was launched with good intentions can be abused by snake-oil salesmen to promote their products.

What would it take to weed this out?

1. Confirm holdings before posting.

2. Display holdings at time of posting to other users.

3. Defined area of expertise (not everyone is an expert in everything) - Always a nice warning sign if people are commenting on stocks all across industries.

4. Peer-reviewed posts. Posts only go live if other experts agree to it.

5. Reduced content velocity - Platforms like Twitter, Stocktwits, Commonstock promote this kind of behaviour by allowing a mix between opinion and insight.

I don't think any of that would work. I'm not letting the criminals off the hook but we have to acknowledge that the people who are taking stock pick advice from "The Stock Sniper" on twitter are greedy morons. They aren't reading financial statements let alone some kind of peer-reviewed research. In fact, Bed Bath and Beyond stock cultists got confirmed (by SEC filings) dumped on by Ryan Cohen and they're still claiming he's somehow long on the company's future

Everyone in that industry is greedy. That's why everyone is there, I suppose. The whole purpose is to make money. And the only way to make money is to take it away from someone who had the contrarian opinion.

These people they prayed on were the uninformed and lazy. It's comparable to Sequoia investing in FTX. They just assumed that someone else had done their research before and went along for the ride. Now they wrote an apology note to their LPs. : https://twitter.com/sequoia/status/1590522718650499073

How can a retail investor distinguish a good apple from a bad one? At least for "Zach Morris" he seemed successful with that scheme - https://twitter.com/margot_rubin/status/1603079409195425793/... At least to the extent that he got 10 properties to collect. So by that notion he is not "just some rando on Twitter".

Finally. Both links I have provided were also posted on social media. The problem is that it is not easy to distinguish who is full of it and who is credible.

But it actually is quite easy for me and I expect most people on this HN thread. The people who aren't able to easily distinguish your two links are really dumb. If exposure to information would be able to make them not dumb it would have already. I just don't think any of these "lets verify facts" kind of schemes will work in here anymore than it didn't work in US politics (fact checkers etc.)

They should have sticked with the Gwyneth Paltrow of scamming people, sell trash that you can convince people to buy at the price of gold (and due audience size alone it's likely enough people will fall for it)

Good! Even though part of me thinks it's an Idiot tax...

How about going after the dogecoin pump and dump guy next?

Well, fuck. First it was Crypto--now we need to ban all stocks.

Where is Molly White when we need her?

Influencers are not your friends.

Again: influencers are not your friends.

Good!

About time people take responsibility for what they hawk.

Now do Musk next!

When Elon Musk? (Serious question)

4 years ago

https://www.sec.gov/news/press-release/2018-226

Finally, people are starting to realize that the "stock market" is a huge scam

I don't think its fair to call the stock market a scam. I do think it's fair to say that a large part of how the stock market is used is in scams.

Ideally, the stock market should be an open, visible and free agency for the population to invest in and gain returns from supporting publicly traded businesses.

I just think it's far too unregulated (or perhaps, improperly regulated is the right term) to operate in that way.

> Ideally, the stock market should be an open, visible and free agency for the population to invest in and gain returns from supporting publicly traded businesses.

Now that trading is moving to "dark pools", things seem to be moving in the opposite direction.

You don't seem to understand what a "dark pool" is and I can't help but get the feeling your financial world model has been poisoned by supporters of very specific stocks. Please step out of whatever place you're learning this stuff from and expose yourself to alternative explanations for the things you're seeing

Please, give me your "alternative explanation" about how dark pools make stock trading more open and visible.

Sure, but first off I never claimed they "make stock trading more open and visible" that was you putting words in my mouth. That being said, it does make it much more accessible to retail investors. Trading stocks without fees and more or less instantly is impossible without dark pools. We could do away with dark pools entirely, but it would mean going back to paying $9.99 for trades or whatever but somehow I expect the same people crying about dark pools wouldn't like that either.

Another aspect of dark pool hate is the idea that market impact can be reduced by selling through them as opposed to on market. If you're a speculator, this can be good or bad depending on the side of the trade you're on so probably evens out to a wash. If you're a long term investor, this is also a wash since you shouldn't be concerned about short term volatility (or lack thereof) of your investment.

What exactly do you take issue with when it comes to dark pools? what problems do you think they're causing that outweigh the very real benefits to market participants I listed?

> Sure, but first off I never claimed they "make stock trading more open and visible" that was you putting words in my mouth.

My whole comment was that they make stock trading the opposite of "open and visible", then you come along and tell me that I don't understand what a dark pool is...

That's exactly what a dark pool does, you just see that as a good thing because it benefits investors. I'm more concerned about their effect on the other 99% of the human population.

Why would non-investors care whether trades in something they don't participate happen in a "lit" exchange or a "dark pool"? I don't play basketball, so not concerned at all about changes to basketball rules. Now i'm very confused on your point

It's simple, everybody participates in the global economy (unlike basketball), so shifts in how markets work have far-reaching effects. I'm not convinced that switching to less transparent systems is in the best interest of your average person.

There is nuance here you are passing by. This is a classic influence pump and dump, these sort of scams make their rounds in various shitcoins all too often. It is a good thing you are hearing about them, because they are being caught. Don't fall for the survival bias fallacy. However, a well diversified index fund is not the same thing. If it seems the same, keep your money in a savings account and pay tithe to hopefully keep the inflation monster at bay.

The SEC has been around for many decades and prosecuting cases like this for just as long. If you work in finance in any form, there are myriad rules you have to follow to not be prosecuted.

This gave me the opposite feeling. Watching all these criminals run pump and dumps openly for the last two years was making me start to feel like the "stock market is a scam". Seeing these people be prosecuted actually _increases_ my faith in the market

The stock market was designed to be profitable for shareholders through dividends, not stock price increases. Today, everyone focuses on stock prices instead of dividends.

The SEC has no teeth until they go after Elon. When are they going to take him to task for making materially false statements regarding Telsa's FSD ambitions?

It’s a big organization. They can do more than one thing at a time. Let’s not play at binary thinking.

> materially false statements

Give us a real example of something you think he said is illegal; being wrong or optimistic isn't illegal.

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