Ohio-based securities trader pleads guilty to securities fraud | USAO-SDNY
Damian Williams, the United States Attorney for the Southern District of New York, announced today that STEVEN GALLAGHER has pleaded guilty to one count of securities fraud. GALLAGHER, using the alias “Alex DeLarge”, created a stock promotion account on Twitter that attracted over 70,000 followers and used the account to tout certain over-the-counter penny stocks. GALLAGHER disseminated false and misleading information about at least one of these stocks in order to trick his followers into buying this stock and driving up its price, while he was secretly selling his holdings. GALLAGHER pleaded guilty before United States District Judge Valerie E. Caproni.
According to the information, complaint and other statements made in court:
STEVEN GALLAGHER is an active day trader in over-the-counter or “OTC” securities. These securities are generally not traded on centralized exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. OTC securities often trade for less than a dollar per share and are therefore often referred to as penny stocks. Many OTC securities are thinly traded and therefore particularly susceptible to inventory manipulation schemes.
In September 2019, GALLAGHER created a Twitter account under the pseudonym “Alex DeLarge”, a character from Anthony Burgess’ novel. 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 has over 70,000 followers. GALLAGHER regularly used DeLarge’s Twitter account to tout various penny stocks in which he personally held prominent positions. GALLAGHER also regularly posted images of his brokerage account balances and trading gains on DeLarge’s Twitter account to bolster his reputation and entice his followers to trade in line with his suggestions.
From December 2020 to approximately February 2021, GALLAGHER used DeLarge’s Twitter account to perform a fraudulent pump-and-dump scheme involving penny stocks issued by a public company known as SpectraScience, Inc. (“SCIE”) ). As part of his fraudulent scheme, GALLAGHER began acquiring a substantial volume of SCIE shares in December 2020. As shares were acquired, GALLAGHER and a few close associates discussed their plans to drive up the share price after securing substantial stakes at relatively cheap prices. GALLAGHER then used DeLarge’s Twitter account to artificially “pump” SCIE shares. This included both retweet posts purporting to announce potentially positive news for SCIE, such as FDA approvals for their products, and materially false and misleading statements about GALLAGHER’s own position in SCIE’s stock. For example, in or around January 2021, GALLAGHER repeatedly tweeted that he planned to hold and had not sold any of his SCIE shares. These statements were however false and GALLAGHER had in fact sold millions of SCIE shares at high prices.
While GALLAGHER was engaged in this scheme, he either knew or deliberately avoided learning that SCIE was a shell company with no real operations or prospects of success. For example, in direct messages with some of his followers, GALLAGHER received information suggesting that SCIE was really just a “gutless shell”. Nonetheless, GALLAGHER engaged in his Twitter-based pump and dump scheme, earning tens of thousands of dollars in illicit profits in the process.
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GALLAGHER, 51, of Maumee, Ohio, pleaded guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
GALLAGHER is to be sentenced on June 27, 2022 by Judge Caproni.
US Attorney Williams praised the work of the HSI. Mr. Williams also thanked the Securities and Exchange Commission for its cooperation and assistance in this investigation.
This matter is being handled by the Bureau’s Securities and Commodities Fraud Task Force. Assistant US Attorneys Richard Cooper, Daniel Tracer and Allison Nichols are in charge of the prosecution.