Steven Gallagher, 50, of Maumee, Ohio, was charged in New York federal court with securities fraud, wire fraud and market manipulation. He was arrested in Ohio. It was not immediately clear who would represent Gallagher at an initial court appearance in Ohio.
U.S. Attorney Damian Williams said in a release that Gallagher “brought old-school boiler room tactics to the Twitter age, and operated a social media pump-and-dump scam that defrauded ordinary investors.”
Ricky J. Patel, head of the New York office for Homeland Security Investigations, said Gallagher turned “lies into cash.”
“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,” Patel said.
Court papers in Manhattan alleged that Gallagher began defrauding followers of a Twitter account he started in September 2019 under the alias “Alex DeLarge,” a gang leader character who commits violent crimes in the Anthony Burgess novel “A Clockwork Orange.” By last week, the account had over 70,000 followers.
Authorities accused Gallagher of secretly buying a substantial number of shares in at least six thinly traded securities known as penny stocks because they are usually worth less than $1 per share. They said he then touted them to followers to cause them to purchase the stocks and drive their values higher.
Then, Gallagher secretly sold his securities while continuing to promote them to his followers so he could gain the highest price possible for his own sales, according to a criminal complaint.
Meanwhile, he boasted of his stock picking prowess to his followers, regularly posting images of his brokerage account balance and gains on his Twitter account to boost his reputation and induce followers to do as he urged, the complaint said.
Trading in one company Gallagher promoted online — Minnesota-based SpectraScience Inc. — was temporarily suspended in February by the Securities and Exchange Commission, which said “certain social media accounts may be engaged in a coordinated attempt to artificially influence the share price,” the complaint said.
Kingston Moy, a Homeland Security agent who signed the complaint, wrote that he'd spoken to at least two investors who lost thousands of dollars after following Gallagher's advice. The agent said the investors were impressed with how many followers Gallagher had and that he seemed to post his own financial positions.
The agent also said he interviewed Gallagher on Monday and Gallagher confirmed that he controls the DeLarge Twitter account and that he had posted a tweet in July 2020 designed to boost the value of one of the stocks he had been promoting to his followers.