On December 13, 2022, the United States Securities and Exchange Commission filed a civil complaint in the Southern District of Texas accusing eight individuals of market manipulation and fraud. In the government’s crosshairs were eight legal names, and along with each, their internet alias; MrZackMorris, PJ Matlock, Tommy Coops, Mystic Mac, Hugh Henne, LadeBackk, Deity of Dips, and Ultra Calls aka the Stock Sniper.
The complaint describes an orchestrated series of “pump-and-dumps” in penny stocks, with social media — Twitter/X, Discord, and podcasts — providing the forum. In total, the SEC alleges that the defendants netted over $100 million in undue profits between January 2020 and December 2022. The government paints a picture of a basic, brazen, and altogether unsurprising scheme.
The defendants bought shares in thinly traded micro-caps — stocks with such small trading volume that any buying pressure would increase the price — and promoted the names to their hundreds of thousands of followers across their digital platforms. Naturally, pictures with Ferraris and Lambos vouched for their credibility.
Of the many examples cited in the complaint, Camber Energy (CEI) demonstrates the impact on price and volume that the defendants wielded for profit.
As the stocks ramped, the defendants would dump their shares, often while still pumping the stock publicly to their wide audience. In private, they relished their profits and the stupidity of their counterparties.
Again, nothing about the complaint is surprising. The folks involved were doing exactly what one should have expected — pumping and dumping. The most surprising aspect was that the SEC was trying to do something about it.
Over the prior years, social media had become a growing and complex factor in the market. Private Discords, Twitter, or Reddit, were gaining traction as legitimate market forums rivalling the importance of more traditional walled-channels of information — Bloomberg, sell-side research, and industry conferences. Combined with a broadening of interest in the stock market and the proliferation of options trading, an entirely new style of “investment” was reborn.
By my unscientific estimation, these forces took root in 2018 and gained momentum throughout 2019. The COVID crisis in early 2020 sent this trend into warp-speed. Suddenly, anonymous internet profiles were wielding the power of influence and moving markets dramatically. Some might call it a democratization of the markets and others might call it the golden age of fraud, but regardless of ethics, the market was changing. Regulators, so it seemed, were either ignorant or toothless.
And so, the SEC’s case against the eight was an important moment, signaling a step-up in enforcement of social media and consequences for bad actors (even as overall interest in stocks had waned with the 2022 bear market). But for those wishing to see a crackdown and consequences, hopes were short lived.
Following a trial of the case, Judge Andrew S. Hanen dismissed the SEC’s complaint in March 2024. The Texas court found that not only had the defendants not been proven guilty of a crime, but that the SEC had failed to allege one — an embarrassing setback for the regulators in this high-profile case.
Part of the failure was simply bad luck. Between the SEC’s initial complaint in 2022 and the case’s dismissal in 2024, the United States Supreme Court reshaped the definition of fraud. Deceit with the intention of profit — or, lying to make money — is not a crime. But there are other facts of the case that deserve a second consideration.
The case is interesting in isolation, but it prompts us to think a bit harder about technology, influence, responsibility and duty in the modern market. Let’s peel back the onion.