Steven Gallagher Allegedly Operated a Social Media Pump-and-Dump Scheme on Twitter to Defraud Retail Investors, Earning Over $1 Million in Illegal Proceeds
Damian Williams, the United States Attorney for the Southern District of New York, and Ricky J. Patel, Acting Special Agent-in-Charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced today that STEVEN GALLAGHER was charged in a Complaint in Manhattan federal court with securities fraud, wire fraud, and market manipulation. GALLAGHER, using the alias “Alex DeLarge,” created a stock promotion account on Twitter that gained over 70,000 followers. GALLAGHER used that account to tout certain over-the-counter penny stocks and to disseminate false and misleading information about his trading in those stocks in order to induce his followers to purchase those stocks and drive up their prices. GALLAGHER earned over $1 million in profits by then secretly selling his previously acquired holdings of those penny stocks. GALLAGHER was arrested today in the Northern District of Ohio and is expected to be presented before a magistrate judge this afternoon.
U.S. Attorney Damian Williams said: “As alleged, Steven 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. Today’s arrest of Gallagher demonstrates that this Office and our law enforcement partners will be vigilant as securities fraud schemes move onto Twitter and other forms of social media.”
Acting HSI Special Agent-in-Charge Ricky J. Patel said: “Turning lies into cash, Gallagher allegedly engaged in a pump & dump scheme, where he and his followers manipulated the price of penny stocks and guaranteed profits for themselves. Pump and dump stock schemes cause mistrust in the market and have real victims who often invest large sums of money, only to have their hopes shattered by a fraudster’s greed. Like so many Hollywood movies which have portrayed stock frauds, Gallagher met the same fate as those storylines, he was arrested and will now face justice. Working with our partners at the USAO-SDNY and the SEC, identifying and disrupting illegal financial schemes like this one 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 TwitterOTC@ice.dhs.gov.
As alleged in the Complaint unsealed today in Manhattan federal court:[1]
STEVEN GALLAGHER is an active day trader in over-the-counter securities, or “OTC securities.” Those securities typically do not trade on centralized exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. OTC securities often trade for less than one dollar per share, and thus are often referred to as “penny stocks.” Many OTC securities are thinly traded, and therefore are particularly susceptible to stock manipulation schemes.
In September 2019, GALLAGHER created a Twitter account using the alias “Alex DeLarge,” a character from the 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 had over 70,000 followers.
From 2020 to the present, GALLAGHER has operated a fraudulent pump-and-dump scheme that employed a variety of tactics to defraud individual, non-professional investors – so-called “retail investors” – in thinly traded over-the-counter securities. GALLAGHER repeated the scheme again and again with respect to numerous securities, employing substantially the same means and methods. As part of his fraudulent scheme, GALLAGHER first secretly acquired a substantial volume of shares of thinly traded penny stocks (the “Subject Securities”). GALLAGHER then used the DeLarge Twitter Account to artificially “pump” the Subject Securities, including by making materially false and misleading statements about those securities. For example, GALLAGHER made false and misleading statements about the nature and timing of GALLAGHER’s own financial interest in those securities, at times representing that he was purchasing or holding shares of certain of the Subject Securities he was touting when, in fact, he was secretly selling. During the course of the scheme, GALLAGHER also regularly posted images of his brokerage account balance and gains on the Delarge Twitter Account in order to bolster his reputation and induce his followers to trade in accordance with his suggestions.
During the “pump” phase of this scheme, the prices of the Subject Securities rose when the Twitter followers of the DeLarge Twitter Account purchased them. Then, GALLAGHER began the “dump” phase of the scheme wherein he sold his shares at the inflated prices while continuing to use the DeLarge Twitter Account to disseminate materially false and fraudulent statements in an effort to obtain the best possible sales price for himself. As a result of this fraudulent scheme, GALLAGHER earned over $1 million in trading profits.
In addition to making false and misleading statements to “pump” the Subject Securities, as a further part of his fraudulent scheme, GALLAGHER also engaged in an additional form of market manipulation with at least one of the Subject Securities. Specifically, GALLAGHER engaged in a series of transactions designed to artificially raise the end-of-day price of one of the Subject Securities by making purchases at above-market prices in order to make the stock appear favorable to potential purchasers, a deceptive practice known as “marking the close.” As with GALLAGHER’s efforts to artificially raise the price of the Subject Securities through false and misleading statements, these manipulative transactions induced other market participants to purchase the security and continue the upward trend in its price while GALLAGHER secretly sold his shares at a profit.
GALLAGHER, 50, of Maumee, Ohio, is charged with one count of securities fraud, which carries a maximum sentence of twenty years in prison, one count of wire fraud, which carries a maximum sentence of twenty years in prison, one count of securities fraud, which carries a maximum sentence of twenty-five years in prison, and one count of one count of market manipulation, which carries a maximum sentence of twenty years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Williams praised the work of the HSI, and noted that the investigation remains ongoing. Mr. Williams further thanked the Securities and Exchange Commission for their cooperation and assistance in this investigation.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictments, and the description of the Indictments set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
