On March 15, the U.S. Securities and Exchange Commission (SEC) announced fraud charges and an asset freeze against a stock trader who used Twitter to spread false information about a company while profiting off the sale of that company’s stocks. The charges follow an alert posted by the SEC’s Office of Investor Education and Advocacy (OIEA), which warns retail investors about the dangers of investing based on information posted on social media. That alert included a link for the public to make whistleblower disclosures about possible securities law violations including market manipulation on social media.
The SEC alleges that under the Twitter handle @OCMillionaire, Andrew L. Fassari spread false information about Arcis Resources Corporation (ARCS), a defunct company. According to the SEC, in December 2020 Fassari began purchasing over 41 million shares of ARCS stock. The SEC claims that Fassari subsequently began to tweet false information about ARCS to his thousands of followers on the social media platform. According to the SEC, Fassari’s fraudulent behavior included “falsely claiming that ARCS was reviving its operations, expanding its business, and being backed by ‘huge’ investors.” Fassari allegedly sold all his shares in ARCS for profits of over $929,000 after the price of the stocks increased over 4000%. The SEC claims that during this time, Fassari continued “to publish false and misleading information about ARCS and his trading in ARCS.”
“We allege that Fassari profited by using social media to deceive investors,” said Melissa R. Hodgman, Acting Director of the SEC’s Division of Enforcement. “The SEC is committed to protecting investors by proactively monitoring suspicious trading activity tied to social media, and by charging those who use social media to violate the federal securities laws.”
According to the SEC’s press release, the SEC is charging Fassari “with violating the antifraud provisions of the federal securities laws” and is seeking “a permanent injunction, disgorgement, prejudgment interest, and a civil penalty from Fassari.”
In January 2021, the SEC’s OIEA issued an alert warning retail-investors of the risks of investing based on social media. Published during a time of extreme market volatility, the alert specifically cautions investors about making short-term investments in volatile markets and offers a number of tips for long-term investing. One of the tips is “[b]e aware of the potential for market manipulation on online platforms.” The alert explains that fraudsters use social media to spread false and misleading information in order to manipulate stock prices.
“For example,” the alert reads, “in a pump and dump scheme, fraudsters pump up a company’s stock price by making false and misleading statements to create a buying frenzy, and then sell shares at the pumped up price. In other instances, fraudsters start negative rumors urging investors to sell their shares so that the stock price plummets and then the fraudsters take advantage of buying shares at the artificially low price.”
The warnings about social media manipulation in the OIEA alert echo warnings from the OIEA’s older Updated Investor Alert: Social Media and Investing — Stock Rumors. This alert states that “[w]hile social media can provide many benefits for investors, it also presents opportunities for fraudsters. Through social media, fraudsters can spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost. They can also conceal their true identities by acting anonymously or even impersonating credible sources of market information.”
Both alerts solicit the public to blow the whistle on potential securities violations through the SEC Whistleblower Program. The older alert ends by stating: “[i]nvestors who learn of investing opportunities from social media should always be on the lookout for fraud. If you are aware of possible securities fraud, including potential market manipulation, submit a tip or complaint to the SEC.” Both alerts include links to SEC’s filing page for TCRs, official whistleblower disclosures.
Since it was created in 2010 with the passage of the Dodd-Frank Act, the SEC Whistleblower Program has proven to be a highly valuable tool in the agency’s enforcement efforts. Whistleblowers have exposed a wide variety of otherwise hard-to-detect misconduct that has resulted in more than $2.7 billion in monetary sanctions. The SEC Whistleblower Program provides anti-retaliation protections to whistleblowers, including confidentiality.
Qualified SEC whistleblowers, individuals who voluntarily provide the SEC original information that leads to a successful enforcement action, are entitled to a monetary award of 10-30% of funds recovered by the government. The SEC pays awards through a fund entirely financed through monetary sanctions paid to the SEC by securities law violators. Since the 2021 fiscal year began on October 1, 2020 the SEC has awarded approximately $197 million to 37 whistleblowers – a record for the total dollar amount awarded to whistleblowers in a fiscal year.