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Stock Trader Charged With Securities Fraud in Twitter Pump-and-Dump Scheme

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What You Need to Know

  • An Ohio over-the-counter penny stock trader allegedly ran a pump-and-dump scheme that earned him $1 million in illegal proceeds.
  • The defendant was arrested and faces a maximum of 85 years in prison if found guilty on all four charges.
  • The SEC filed an emergency action and obtained an injunction and asset freeze against him.

A stock trader based in Maumee, Ohio, was arrested on Tuesday and charged with securities fraud, wire fraud and market manipulation after he used his Twitter account to operate a pump-and-dump scheme involving over-the-counter penny stocks, according to Damian Williams, U.S. attorney for the Southern District of New York.

Steven Gallagher, 50, was arrested in the Northern District of Ohio but was charged in a complaint filed in U.S. District Court for the Southern District of New York, Williams said in a news release that described the defendant as an “active day trader.”

The defendant faces a maximum of 85 years in prison if found guilty on all four charges. He was charged with two counts of securities fraud, one of which carries a maximum sentence of 20 years in prison and the other that carries a maximum sentence of 25 years, and one count each of wire fraud and market manipulation, which each carry a maximum of 20 years, according to the Justice Department.

‘Alex Delarge’

Gallagher, using the aliases “Alex Delarge” and “@AlexDelarge6553,” created a stock promotion account on Twitter in September 2019 that attracted more than 70,000 followers and earned him over $1 million in illegal proceeds, according to the complaint.

His alias was a nod to the main character of the Anthony Burgess novel “A Clockwork Orange” and the classic Stanley Kubrick film of the same name in which actor Malcolm McDowell played him.

Gallagher used the Twitter account to tout certain over-the-counter penny stocks and to disseminate false and misleading information about his trading in those stocks to induce his followers to buy those stocks and drive up their prices, the complaint alleged.

From at least in or about May 2020, up to and including in or about the present, in the Southern District of New York and elsewhere, Gallagher “willfully and knowingly” devised and ran the scheme to defraud investors, the complaint alleged.

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He used the social network to “misrepresent the nature of his personal financial stake in certain over-the-counter penny stocks in order to induce others to purchase those stocks, and thereby drive up the stocks’ prices, while Gallagher simultaneously and secretly sold, or dumped, his own previously acquired shares at those artificially inflated prices,” according to the complaint.

In addition to making false and misleading statements to “pump” the securities, Gallagher also allegedly engaged in an additional form of market manipulation with at least one of the stocks.

Specifically, he allegedly engaged in transactions designed to artificially raise the end-of-day price of one of the securities by making purchases at above-market prices to make the stock appear favorable to potential buyers, a deceptive practice known as “marking the close,” according to the complaint.

Gallagher “brought old-school boiler room tactics to the Twitter age, and operated a social media pump-and-dump scam that defrauded ordinary investors, all so that he could make over $1 million in profits,” Williams said in a statement.

Separate SEC Action

Separately, the Securities and Exchange Commission filed an emergency action and obtained an injunction and asset freeze against Gallagher for the same stock manipulation scheme, it said Tuesday.

The SEC’s complaint, also filed in U.S. District Court for the Southern District of New York, alleged that Gallagher engaged in the scheme since at least December 2019.

The SEC charged Gallagher with violating the anti-fraud provisions of federal securities laws. The complaint seeks, among other relief, a permanent injunction, disgorgement, prejudgment interest and civil penalties, in addition to the asset freeze granted by the court.