Key Takeaways: Edward Constantinescu and the Pump-and-Dump Scheme

  • The Department of Justice (DOJ) accuses eight influencers of a pump-and-dump scheme, affecting over 1.5 million followers and generating $114 million in illicit profits.
  • Edward Constantinescu, alias @MrZackMorris, is identified as the ringleader among the accused, who were prominent figures in the financial Twitter community, or “fintwit.”
  • The scheme involved using social media platforms, particularly Twitter and Discord, to mislead followers into buying overhyped penny stocks, which the accused then sold at inflated prices.
  • The accused face severe legal consequences, with sentences starting at 25 years in prison, highlighting the seriousness of securities fraud and market manipulation.
  • The FBI’s involvement underscores the federal government’s commitment to combating corporate fraud and protecting investors from deceptive practices in the securities market.
  • The incident has triggered a reevaluation of the influence social media has on investment decisions and the importance of due diligence in the digital age.

The Reasons Behind the Pump-and-Dump Accusation

The Department of Justice (DOJ) is accusing eight individuals who ran social media accounts with a combined following of more than 1.5 million of pulling a pump-and-dump scheme that allegedly generated $114 million in profits for the indicted.

In a press release published yesterday, the DOJ announced the names of those charged by a federal grand jury in the Southern District of Texas. The group used Twitter and Discord to deceive the public and encourage their followers to purchase specific securities they supported by offering false “insights” about the companies, portraying them as good investment choices.

Edward Constantinescu, also known as Constantine, was apparently the leader of the group. He was a well-known figure in the so-called “fintwit” space – a sub-community on Twitter that is interested in the financial, trading, and investment industry – through his handle @MrZackMorris.

The other seven indicted parties – Perry “PJ” Matlock, John Rybarczyk, Gary Deel, Stefan Hrvatin, Tom Cooperman, Mitchell Hennessey, and Daniel Knight –were also considered “influencers” in the fintwit space. They all face a minimum of 25 years in prison for their activities although Constantinescu could be sentenced to an additional 10 years for engaging in unlawful monetary transactions.

How Did the Pump and Dump Scheme Work?

Constantinescu and his group used a Discord group known as the “Atlas Trading Discord” to spread false information about the stocks they were interested in pumping. These were primarily low-volume penny stocks whose price could easily be inflated by even the smallest amount of buy orders.

After the price skyrocketed as they intended, they used the volume provided by their following to find the required exit liquidity to close the positions at a profit, the indictment from the DOJ indicates.

“The eight individuals arrested today are accused of costing investors, specifically their social media followers who trusted them, millions of dollars by a ‘pump and dump’ market manipulation scheme they allegedly carried out on popular social media platforms. As the lead agency investigating corporate fraud, the FBI was able to uncover their alleged manipulative activity and expose their coordinated pattern of securities fraud”, stated James Smith, the FBI’s Special Agent in Charge of the case.

Atlas was sold to new subscribers as an online community for individual stock traders. The group’s activities allegedly started in January 2020, right before the pandemic, and exploited a growing interest in the financial markets and securities trading.

As of today, the Twitter account of @PJ_Matlock, which was run by Perry Matlock, a 39-year-old from Texas, has apparently been deleted. The remainder of the individuals being accused are still active on the social media platform.

Investigations about the group’s activities are still on course and are being conducted by the Federal Bureau of Investigation (FBI). According to the initial arguments made by the DOJ, the individuals who pumped these securities backed each other to create a sense that they were “credible” financial experts who had some sort of formula to identify potentially profitable trading opportunities.

A Podcast Used by the Group to Promote Themselves Has Been Taken Down

One of the accused parties, Daniel Knight (@DipDeity), hosted a podcast alongside Mitchell Hennessey – also indicted – called Pennies: Going In Raw. They regularly invited some of the individuals within the group so they could share their ideas and attract more subscribers to their Discord channel.

The podcasts’ episodes are no longer available on iHeart Radio. According to the official website of Pennies: Going in Raw, Hennesey started out as a stock trader with just $50,000 and managed to grow his portfolio to $1 million in just four months.

Meanwhile, the website depicts Dan Knight as a humorist and content creator who started producing funny videos about stock trading to bring some joy to the community. None of the eight individuals within the group has made public comments about the indictment.

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