Securities Trader Arrested Charged With Securities Fraud For Using His Twitter Account To Operate A Pump And Dump Program | USAO-SDNY

Damian Williams, United States Attorney for the Southern District of New York, and Ricky J. Patel, Acting Special Agent for the local New York Homeland Security Investigations Office (“HSI”), announced today that STEVEN GALLAGHER was indicted in a lawsuit in Manhattan Federal Court for securities fraud, wire fraud and market manipulation. GALLAGHER, using the alias “Alex DeLarge”, created an equity promotion account on Twitter which has gained over 70,000 followers. GALLAGHER used this account to tout certain publicly traded stocks and to spread false and misleading information about his trading in those stocks in order to induce his supporters to buy those stocks and raise their prices. GALLAGHER made over a million dollars in profit by then secretly selling his previously acquired holdings of these penny stocks. GALLAGHER was arrested today in the Northern Ohio District and is expected to appear before a trial judge this afternoon.

US Attorney Damian Williams said: “As alleged, Steven Gallagher introduced old-fashioned boiler room tactics in the Twitter age and exploited a pump-and-dump-type social media scam that defrauded ordinary investors. , all so that he could earn over a million dollars in profit. Gallagher’s arrest today demonstrates that this office and our law enforcement partners will be vigilant as securities fraud schemes move to Twitter and other forms of social media.

HSI Acting Special Agent Ricky J. Patel said: “Turning lies into cash, Gallagher is said to have embarked on a pump-and-dump program, in which he and his supporters manipulated the price of listed shares. in cents and guaranteed profits. The systems of pumping and emptying stocks create distrust in the market and claim real victims who often invest large sums of money, only to have their hopes shattered by the greed of a fraudster. Like so many Hollywood films that have portrayed stock market frauds, Gallagher suffered the same fate as these intrigues, he was arrested and will now face justice. Working with our partners in the USAO-SDNY and the SEC, identifying and disrupting illegal financial schemes like this is a top priority for HSI.

If you believe you are a victim of this crime, or if you have information relevant to this investigation, please send an email to [email protected]

As alleged in the lawsuit unsealed today in Manhattan federal court:[1]

STEVEN GALLAGHER is an active day trader in over-the-counter securities, or “over-the-counter securities”. These securities are generally not traded on centralized exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Over-the-counter securities often trade for less than a dollar per share and are therefore often referred to as “penny stocks”. Many over-the-counter securities are lightly traded and therefore are particularly sensitive to stock manipulation patterns.

In September 2019, GALLAGHER created a Twitter account under the alias “Alex DeLarge”, a character from the novel by Anthony Burgess A clockwork orange and the Stanley Kubrick film of the same name (the “DeLarge Twitter Account”). As of October 19, 2021, the DeLarge Twitter account had more than 70,000 followers.

From 2020 to the present, GALLAGHER has implemented a fraudulent pump-and-dump scheme that has used various tactics to defraud non-professional individual investors – known as “retail investors” – in loosely traded OTC securities. GALLAGHER has repeated the pattern over and over again with respect to many titles, employing much the same means and methods. As part of his fraudulent scheme, GALLAGHER first secretly acquired a substantial volume of shares of lightly traded penny stocks (the “Subject Securities”). GALLAGHER then used the DeLarge Twitter account to artificially “inflate” the headlines, including making materially false and misleading statements about those headlines. For example, GALLAGHER has made false and misleading representations about the nature and timing of GALLAGHER’s financial interest in these securities, sometimes representing that he was purchasing or holding shares of some of the subject securities that he was touting while in fact, it was secretly selling. During the program, GALLAGHER also regularly posted images of his brokerage account balance and earnings on the Delarge Twitter account in order to bolster his reputation and encourage his followers to trade according to his suggestions.

During the “pumping” phase of this program, the prices of the submitted titles increased when Twitter followers of the DeLarge Twitter account purchased them. Next, GALLAGHER entered the ‘dump’ phase of the scheme in which he sold his shares at inflated prices while continuing to use the DeLarge Twitter account to disseminate materially false and fraudulent statements in an attempt to get the best possible sale price for itself. As a result of this fraudulent scheme, GALLAGHER made over $ 1 million in business profits.

In addition to making false and misleading statements to “inflate” the targeted securities, as part of his fraudulent scheme, GALLAGHER has also engaged in an additional form of market manipulation with at least one of the affected securities. More specifically, GALLAGHER has engaged in a series of operations aimed at artificially increasing the end-of-day price of one of the securities concerned by making purchases at prices above the market in order to reveal the action favorable to the market. potential buyers, a deceptive practice known as “marking the end”. As with GALLAGHER’s efforts to artificially increase the price of securities subject to false and misleading claims, these manipulative transactions prompted other market participants to purchase the security and continue the upward trend in its price as GALLAGHER secretly sold his shares for a profit.

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GALLAGHER, 50, of Maumee, Ohio, is charged with one count of securities fraud, carrying a maximum sentence of twenty years in prison, one count of wire fraud, carrying a maximum sentence of twenty years in prison, one count of securities fraud, punishable by a maximum penalty of twenty-five years in prison, and one count of market manipulation, punishable by a maximum of twenty years in prison. The potential maximum sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any conviction of the defendant will be determined by the judge.

Mr Williams praised the work of HSI and noted that the investigation is continuing. Mr. Williams further thanked the Securities and Exchange Commission for their cooperation and assistance in this investigation.

This case is being handled by the Bureau’s Securities and Commodities Fraud Working Group. Assistant US prosecutors Richard Cooper, Daniel Tracer and Allison Nichols are in charge of the prosecution.

The allegations in the complaint are only accusations, and the defendant is presumed innocent until proven guilty.

[1] As the introductory sentence indicates, the entire text of the Indictments and the description of the Indictments set forth here constitute allegations only, and each fact described should be treated as an allegation.

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