Ohio-Based Stock Trader Pleads Guilty To Securities Fraud
Steven Gallagher Tweeted False Information to over 70,000 Twitter Followers To Orchestrate a Virtual Pump and Dump Scheme
Damian Williams, the United States Attorney for the Southern District of New York, announced today that STEVEN GALLAGHER pled guilty to one count of securities fraud. GALLAGHER, using the alias “Alex DeLarge,” created a stock promotion account on Twitter that gained over 70,000 followers, and used that account to tout certain over-the-counter penny stocks. GALLAGHER disseminated false and misleading information about at least one of those stocks in order to induce his followers to purchase that stock and drive up its price, while he secretly sold his holdings. GALLAGHER pled guilty in front of United States District Judge Valerie E. Caproni.
According to the Information, the Complaint, and other statements made in court:
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. GALLAGHER regularly used the DeLarge Twitter Account to tout various penny stocks in which he personally held substantial positions. GALLAGHER also regularly posted images of his brokerage account balances and trading gains on the DeLarge Twitter Account in order to bolster his reputation and induce his followers to trade in accordance with his suggestions.
From approximately December 2020 through February 2021, GALLAGHER used the DeLarge Twitter Account to operate a fraudulent pump-and-dump scheme with respect to penny stock issued by a public company known as SpectraScience, Inc. (“SCIE”). As part of his fraudulent scheme, GALLAGHER began acquiring a substantial volume of SCIE shares in December 2020. As he acquired shares, GALLAGHER and a few close associates discussed their plans to push the stock price up after they obtained substantial holdings at relatively cheap prices. GALLAGHER then used the DeLarge Twitter Account to artificially “pump” SCIE stock. This included both re-tweeting posts that purported to announce potentially positive news for SCIE, such as FDA approvals for their products, and making materially false and misleading statements about GALLAGHER’s own position in SCIE stock. For example, in or about January 2021, GALLAGHER repeatedly tweeted that he planned on holding and had not sold any of his shares of SCIE. These statements, however, were false and GALLAGHER had in fact sold millions of shares of SCIE at heightened prices.
While GALLAGHER was engaged in this scheme, he knew or purposely avoided learning that SCIE was a shell company with no actual operations or prospects for success. For example, in direct messages with some of his followers, GALLAGHER received information suggesting that SCIE was really just a “shell with not guts.” Nevertheless, GALLAGHER engaged in his Twitter-based pump and dump scheme, thereby earning tens of thousands of dollars in illicit profit.
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GALLAGHER, 51, of Maumee, Ohio, plead guilty to one count of securities fraud, which carries a maximum sentence of twenty years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
GALLAGHER is scheduled be sentenced on June 27, 2022, by Judge Caproni.
U.S. Attorney Williams praised the work of the HSI. Mr. Williams further thanked the Securities and Exchange Commission for their cooperation and assistance in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Richard Cooper, Daniel Tracer, and Allison Nichols are in charge of the prosecution.