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Twitter Influencers Duped Retail Investors Using Penny Stocks

By Claire Ballentine and Paulina Cachero

The meme stock and crypto craziness that bubbled up online in recent years is facing a reckoning.

The U.S. Securities and Exchange Commission headquarters in Washington, D.C., U.S., on Wednesday, Feb. 23, 2022. Hedge funds and other investors would have less time to disclose that they’ve acquired a significant stake in a company under new rules proposed by the SEC.

Atlas Trading — known for giving advice to small-time traders trying to make a quick buck — is the latest to come under investigation, with its founders charged by federal authorities with running a $100 million “pump and dump” scheme through social media and taking advantage of novice traders by “feeding them a steady diet of misinformation,” according to a press release from the SEC.

Authorities allege that Edward Constantinescu, or @MrZackMorris on Twitter, Perry Matlock, @PJ_Matlock and six others were involved in buying stocks, pitching them to their online followers and then selling the shares to make a profit.

What is Atlas Trading?

The stock trading chatroom on the Discord platform rose in popularity during the pandemic as retail traders piled into investing for the first time, generating a following of more than 230,000. Constantinescu and Matlock also became well-known Twitter personalities who posted their investment ideas on their feeds. They have 550,000 followers and 340,000 followers, respectively, and the group as a whole collectively had more than 1.5 million followers, according to the indictment. Thousands would tune into live discussions on Twitter spaces to hear trading advice from members of Atlas Group, and Morris would encourage followers to join to “make more money.” Newbie crypto traders were especially enamored by Constantinescu — an immigrant from Romania — because he billed himself as an average guy, working at T-Mobile before making his rags to riches dreams come true in the stock market.

Alongside tweets about his stock picks, Constantinescu documented pictures of his lavish lifestyle, relaxing by the pool at his 10,000-square foot Texas lakefront mansion and posing in front of his brand new Rolls Royce. When asked about his credentials, Constantinescu would tell people to look at his “gains.” 

In a Twitter Spaces last year, Constantinescu attributed his success in retail trading to AMC Entertainment Holdings Inc., a stock that he frequently hyped up. He also referred to himself as the “Wolf of FinTwit” on Instagram and posted photos of a new Tesla that he bought with his earnings. 

What stocks did they promote?

There were many, but GTT Communications Inc., Surface Oncology Inc. and Universe Pharmaceuticals Inc. were listed in the indictment. Atlas allegedly told followers to take positions in the stocks, with the share prices surging before an inevitable plummet. For instance, Surface Oncology rose about 400% from March 2020 to January 2021, before dropping in subsequent months. The group also promoted Context Logic Inc., Carlotz Inc. and Enveric Biosciences Inc.

Sofia Samrad, a New York-based retail trader, bought those three securities in August 2021 on Constantinescu’s recommendation. She decided to trust him after seeing one of his stock picks FuboTV Inc. jump from $8 to $60. Instead of turning a profit as Atlas promised, Samrad lost nearly $100,000.

“As soon as I put my money in, it would drop like crazy — sometimes by 20%,” she said.

Samrad eventually realized something was amiss when she talked with a friend who had lost as much as $80,000 on Atlas Trading’s stock picks. She then sold all the positions she’d taken at their recommendation and filed a complaint to the SEC in May 2022. 

Who is Involved?

Along with Constantinescu and Matlock, the others charged are: Thomas Cooperman (@ohheytommy); Gary Deel (@notoriousalerts); Mitchell Hennessey (@Hugh_Henne); Stefan Hrvatin (@LadeBackk); John Rybarcyzk (@Ultra_Calls) and Daniel Knight (@DipDeity).

All but Knight were charged with securities fraud, while Knight was charged with aiding and abetting the alleged scheme. He co-hosted a podcast in which he promoted the others as expert traders, and also traded alongside them and generated profits from the manipulation, according to the SEC.

The SEC noted that members “bragged and laughed about making profits at the expense of their followers.” The indictment included an excerpt from a Discord voice recording in which Knight allegedly said they were “robbing f*cking idiots of their money.”

What happens now? 

The SEC’s investigation is still ongoing, handled by the agency’s market abuse unit in the Boston regional office. At the same time, criminal charges against all eight individuals have also been filed by the Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas.

The defendants made their initial court appearances on Tuesday, according to the US Department of Justice. Each faces a maximum penalty of 25 years in prison if convicted. Those who believe they are victims of the fraud can contact the agency toll-free at (888) 549-3945 or by email at [email protected] 

More stories like this are available on bloomberg.com

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