Finfluencers face U.S. fraud charges

A collection of finfluencers are facing charges in connection with an alleged US$100 million market manipulation scheme that used Discord and Twitter to pump and dump stocks.

A federal indictment, unsealed today, charges eight people with conspiracy to commit securities fraud, among other related securities fraud charges for some of the defendants, for their alleged involvement with a long-running, social media-based scheme.

The same eight people were also charged by the U.S. Securities and Exchange Commission (SEC).

None of the allegations have been proven.

The SEC charged seven of the group with securities fraud for allegedly portraying themselves as successful traders on Twitter and Discord, touting their stock picks to their followers, and then dumping their own holdings as the prices of the stocks they touted rose. An eighth person was charged with aiding and abetting the scheme by promoting it on a podcast.

According to the Texas grand jury’s indictment, the defendants “allegedly disseminated false and misleading information about the securities that they pumped and dumped” to their combined 1.5 million Twitter followers. It is also alleged that they spread false information about the stocks in an online chatroom they ran, known as the Atlas Trading Discord.

“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 US$100 million,” said Joseph Sansone, chief of the SEC enforcement division’s market abuse unit, in a release.

“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,” he added.

The SEC’s action seeks permanent injunctions, civil penalties, disgorgement, and prejudgment interest against the defendants.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.